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LENDING ACTIVITIES
 9 Months Ended
Sep. 30, 2021
LENDING ACTIVITIES  
LENDING ACTIVITIES

6. Lending Activities

 

The following table presents the composition of Mortgage and other loans receivable, net:

 

September 30,

 

December 31,

(in millions)

 

2021

 

2020

Commercial mortgages(a)

$

35,980

$

36,424

Residential mortgages

 

4,808

 

4,645

Life insurance policy loans

 

1,876

 

1,986

Commercial loans, other loans and notes receivable

 

3,798

 

3,321

Total mortgage and other loans receivable

 

46,462

 

46,376

Allowance for credit losses(b)

 

(641)

 

(814)

Mortgage and other loans receivable, net

$

45,821

$

45,562

(a)Commercial mortgages primarily represent loans for apartments, offices and retail properties, with exposures in New York and California representing the largest geographic concentrations (aggregating approximately 22 percent and 10 percent, respectively, at September 30, 2021 and 24 percent and 10 percent, respectively, at December 31, 2020).

(b)Does not include allowance for credit losses of $83 million and $79 million, respectively, at September 30, 2021 and December 31, 2020, in relation to off-balance-sheet commitments to fund commercial mortgage loans, which is recorded in Other liabilities.

 

Interest income is not accrued when payment of contractual principal and interest is not expected. Any cash received on impaired loans is generally recorded as a reduction of the current carrying amount of the loan. Accrual of interest income is generally resumed when delinquent contractual principal and interest is repaid or when a portion of the delinquent contractual payments are made and the ongoing required contractual payments have been made for an appropriate period. As of September 30, 2021, $8 million and $251 million of residential mortgage loans and commercial mortgage loans, respectively, were placed on nonaccrual status. As of December 31, 2020, $14 million and $238 million of residential mortgage loans and commercial mortgage loans, respectively, were placed on nonaccrual status.

Accrued interest is presented separately and is included in Other assets on the Condensed Consolidated Balance Sheets. As of September 30, 2021, accrued interest receivable was $11 million and $131 million associated with residential mortgage loans and commercial mortgage loans, respectively. As of December 31, 2020, accrued interest receivable was $14 million and $129 million associated with residential mortgage loans and commercial mortgage loans, respectively.

A significant majority of commercial mortgages in the portfolio are non-recourse loans and, accordingly, the only guarantees are for specific items that are exceptions to the non-recourse provisions. It is therefore extremely rare for us to have cause to enforce the provisions of a guarantee on a commercial real estate or mortgage loan.

Nonperforming loans are generally those loans where payment of contractual principal or interest is more than 90 days past due. Nonperforming loans were not significant for any of the periods presented.

Credit Quality of Commercial Mortgages

The following table presents debt service coverage ratios(a) for commercial mortgages by year of vintage:

September 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in millions)

 

2021

 

2020

 

2019

 

2018

 

2017

 

Prior

 

Total

>1.2X

$

1,466

$

1,827

$

5,082

$

4,592

$

3,709

$

12,977

$

29,653

1.00 - 1.20X

 

526

 

868

 

752

 

667

 

181

 

1,219

 

4,213

<1.00X

 

1

 

27

 

-

 

957

 

88

 

1,041

 

2,114

Total commercial mortgages

$

1,993

$

2,722

$

5,834

$

6,216

$

3,978

$

15,237

$

35,980

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in millions)

 

2020

 

2019

 

2018

 

2017

 

2016

 

Prior

 

Total

>1.2X

$

1,914

$

5,596

$

5,649

$

3,941

$

4,592

$

10,730

$

32,422

1.00 - 1.20X

 

770

 

467

 

456

 

144

 

161

 

1,106

 

3,104

<1.00X

 

4

 

86

 

343

 

87

 

96

 

282

 

898

Total commercial mortgages

$

2,688

$

6,149

$

6,448

$

4,172

$

4,849

$

12,118

$

36,424

The following table presents loan-to-value ratios(b) for commercial mortgages by year of vintage:

September 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in millions)

 

2021

 

2020

 

2019

 

2018

 

2017

 

Prior

 

Total

Less than 65%

$

1,304

$

2,365

$

3,484

$

4,232

$

2,641

$

10,780

$

24,806

65% to 75%

 

355

 

331

 

2,331

 

1,984

 

1,010

 

3,346

 

9,357

76% to 80%

 

-

 

-

 

19

 

-

 

153

 

531

 

703

Greater than 80%

 

334

 

26

 

-

 

-

 

174

 

580

 

1,114

Total commercial mortgages

$

1,993

$

2,722

$

5,834

$

6,216

$

3,978

$

15,237

$

35,980

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in millions)

 

2020

 

2019

 

2018

 

2017

 

2016

 

Prior

 

Total

Less than 65%

$

2,382

$

3,755

$

3,855

$

2,565

$

2,852

$

8,145

$

23,554

65% to 75%

 

274

 

2,330

 

2,363

 

1,306

 

1,200

 

2,551

 

10,024

76% to 80%

 

28

 

45

 

30

 

-

 

70

 

515

 

688

Greater than 80%

 

4

 

19

 

200

 

301

 

727

 

907

 

2,158

Total commercial mortgages

$

2,688

$

6,149

$

6,448

$

4,172

$

4,849

$

12,118

$

36,424

(a) The debt service coverage ratio compares a property’s net operating income to its debt service payments, including principal and interest. Our weighted average debt service coverage ratio was 2.0X at September 30, 2021 and 2.2X at December 31, 2020. The debt service coverage ratios have been updated within the last 12 months. The debt service coverage ratios are updated when additional relevant information becomes available.

 

(b)The loan-to-value ratio compares the current unpaid principal balance of the loan to the estimated fair value of the underlying property collateralizing the loan. Our weighted average loan-to-value ratio was 58 percent at September 30, 2021 and was 60 percent at December 31, 2020. The loan-to-value ratios have been updated within the last three to nine months.The following table presents the credit quality performance indicators for commercial mortgages:

 

Number

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percent

 

 

of

 

Class

 

 

of

 

(dollars in millions)

Loans

 

Apartments

 

Offices

 

Retail

Industrial

 

Hotel

 

Others

 

Total

Total

 

September 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit Quality Performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Indicator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In good standing

646

 

$

14,084

$

10,405

$

4,872

$

3,774

$

1,932

$

451

$

35,518

99

%

Restructured(a)

9

 

 

-

 

141

 

49

 

-

 

136

 

-

 

326

1

 

90 days or less delinquent

-

 

 

-

 

-

 

-

 

-

 

-

 

-

 

-

-

 

>90 days delinquent or in

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

process of foreclosure

5

 

 

-

 

81

 

55

 

-

 

-

 

-

 

136

-

 

Total(b)

660

 

$

14,084

$

10,627

$

4,976

$

3,774

$

2,068

$

451

$

35,980

100

%

Allowance for credit losses

 

 

$

104

$

262

$

114

$

42

$

29

$

6

$

557

2

%

December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit Quality Performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Indicator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In good standing

688

 

$

13,969

$

10,506

$

5,144

$

3,766

$

2,064

$

460

$

35,909

99

%

Restructured(a)

5

 

 

-

 

52

 

50

 

-

 

4

 

-

 

106

-

 

90 days or less delinquent

3

 

 

-

 

87

 

-

 

-

 

114

 

-

 

201

-

 

>90 days delinquent or in

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

process of foreclosure

4

 

 

-

 

67

 

55

 

-

 

86

 

-

 

208

1

 

Total(b)

700

 

$

13,969

$

10,712

$

5,249

$

3,766

$

2,268

$

460

$

36,424

100

%

Allowance for credit losses

 

 

$

145

$

267

$

145

$

53

$

65

$

10

$

685

2

%

(a)Loans that have been modified in troubled debt restructurings and are performing according to their restructured terms. For additional discussion of troubled debt restructurings see Note 7 to the Consolidated Financial Statements in the 2020 Annual Report.

(b) Does not reflect allowance for credit losses.

The following table presents credit quality performance indicators for residential mortgages by year of vintage:

September 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in millions)

 

2021

 

2020

 

2019

 

2018

 

2017

 

Prior

 

Total

FICO*:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

780 and greater

$

1,066

$

752

$

355

$

133

$

227

$

570

$

3,103

720 - 779

 

830

 

255

 

102

 

51

 

69

 

177

 

1,484

660 - 719

 

29

 

44

 

25

 

13

 

21

 

55

 

187

600 - 659

 

-

 

1

 

2

 

3

 

2

 

13

 

21

Less than 600

 

-

 

-

 

1

 

1

 

2

 

9

 

13

Total residential mortgages

$

1,925

$

1,052

$

485

$

201

$

321

$

824

$

4,808

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in millions)

 

2020

 

2019

 

2018

 

2017

 

2016

 

Prior

 

Total

FICO*:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

780 and greater

$

522

$

619

$

283

$

469

$

539

$

484

$

2,916

720 - 779

 

478

 

349

 

103

 

155

 

180

 

156

 

1,421

660 - 719

 

19

 

61

 

28

 

42

 

51

 

58

 

259

600 - 659

 

1

 

5

 

6

 

7

 

4

 

12

 

35

Less than 600

 

-

 

-

 

1

 

2

 

2

 

9

 

14

Total residential mortgages

$

1,020

$

1,034

$

421

$

675

$

776

$

719

$

4,645

*Fair Isaac Corporation (FICO) is the credit quality indicator used to evaluate consumer credit risk for residential mortgage loan borrowers and have been updated within the last twelve months.

Methodology Used to Estimate the Allowance for Credit Losses

At the time of origination or purchase, an allowance for credit losses is established for mortgage and other loan receivables and is updated each reporting period. Changes in the allowance for credit losses are recorded in realized losses. This allowance reflects the risk of loss, even when that risk is remote, and reflects losses expected over the remaining contractual life of the loan. The allowance for credit losses considers available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts of future economic conditions. We revert to historical information when we determine that we can no longer reliably forecast future economic assumptions.

The allowances for the commercial mortgage loans and residential mortgage loans are estimated utilizing a probability of default and loss given default model. Loss rate factors are determined based on historical data and adjusted for current and forecasted information. The loss rates are applied based on individual loan attributes and considering such data points as loan-to-value ratios, FICO scores, and debt service coverage.

The estimate of credit losses also reflects management’s assumptions on certain macroeconomic factors that include, but are not limited to, gross domestic product growth, employment, inflation, housing price index, interest rates and credit spreads.

Accrued interest is excluded from the measurement of the allowance for credit losses and accrued interest is reversed through interest income once a loan is placed on nonaccrual.

When all or a portion of a loan is deemed uncollectible, the uncollectible portion of the carrying amount of the loan is charged off against the allowance.

We also have off-balance sheet commitments related to our commercial mortgage loans. The liability for expected credit losses related to these commercial mortgage loan commitments is reported in Other liabilities in the Condensed Consolidated Balance Sheets. When a commitment is funded, we record a loan receivable and reclassify the liability for expected credit losses related to the commitment into loan allowance for expected credit losses. Other changes in the liability for expected credit losses on loan commitments are recorded in Net realized gains (losses) in the Condensed Consolidated Statements of Income (Loss).

The following table presents a rollforward of the changes in the allowance for credit losses on Mortgage and other loans receivable(a):

Three Months Ended September 30,

2021

 

2020

 

 

Commercial

 

Other

 

 

 

 

Commercial

 

Other

 

 

(in millions)

 

Mortgages

 

Loans

 

Total

 

 

Mortgages

 

Loans

 

Total

Allowance, beginning of period

$

587

$

114

$

701

 

$

667

$

127

$

794

Loans charged off

 

(2)

 

-

 

(2)

 

 

-

 

-

 

-

Recoveries of loans previously charged off

 

-

 

-

 

-

 

 

-

 

-

 

-

Net charge-offs

 

(2)

 

-

 

(2)

 

 

-

 

-

 

-

Addition to (release of) allowance for loan losses

 

(28)

 

1

 

(27)

 

 

(8)

 

11

 

3

Reclassified to held for sale(b)

 

-

 

(31)

 

(31)

 

 

-

 

-

 

-

Allowance, end of period

$

557

$

84

$

641

 

$

659

$

138

$

797

Nine Months Ended September 30,

2021

 

2020

 

 

Commercial

 

Other

 

 

 

 

Commercial

 

Other

 

 

(in millions)

 

Mortgages

 

Loans

 

Total

 

 

Mortgages

 

Loans

 

Total

Allowance, beginning of year

$

685

$

129

$

814

 

$

336

$

102

$

438

Initial allowance upon CECL adoption

 

-

 

-

 

-

 

 

311

 

7

 

318

Loans charged off

 

(2)

 

-

 

(2)

 

 

(12)

 

-

 

(12)

Recoveries of loans previously charged off

 

-

 

-

 

-

 

 

-

 

-

 

-

Net charge-offs

 

(2)

 

-

 

(2)

 

 

(12)

 

-

 

(12)

Addition to (release of) allowance for loan losses

 

(126)

 

(14)

 

(140)

 

 

24

 

29

 

53

Reclassified to held for sale(b)

 

-

 

(31)

 

(31)

 

 

-

 

-

 

-

Allowance, end of period

$

557

$

84

$

641

 

$

659

$

138

$

797

(a)Does not include allowance for credit losses of $83 million and $66 million, respectively, at September 30, 2021 and 2020 in relation to off-balance-sheet commitments to fund commercial mortgage loans, which is recorded in Other liabilities.

(b)Reported in Other assets in the Condensed Consolidated Balance Sheets.

 

As a result of the COVID-19 crisis, including the significant global economic slowdown, our expectations and models used to estimate the allowance for losses on commercial and residential mortgage loans have been updated to reflect the current economic environment. The full impact of COVID-19 on real estate valuations remains uncertain and we will continue to review our valuations as further information becomes available.

TROUBLED DEBT RESTRUCTURINGS

We modify loans to optimize their returns and improve their collectability, among other things. When we undertake such a modification with a borrower that is experiencing financial difficulty and the modification involves us granting a concession to the troubled debtor, the modification is a troubled debt restructuring (TDR). We assess whether a borrower is experiencing financial difficulty based on a variety of factors, including the borrower’s current default on any of its outstanding debt, the probability of a default on any of its debt in the foreseeable future without the modification, the insufficiency of the borrower’s forecasted cash flows to service any of its outstanding debt (including both principal and interest), and the borrower’s inability to access alternative third-party financing at an interest rate that would be reflective of current market conditions for a non-troubled debtor. Concessions granted may include extended maturity dates, interest rate changes, principal or interest forgiveness, payment deferrals and easing of loan covenants.

In response to the COVID-19 pandemic, there was an increase in the volume of loan modifications in our commercial mortgage, residential mortgage and leveraged loan portfolios in 2020. The COVID-19 related modifications were primarily in the form of short term payment deferrals (one to six months). Short-term payment deferrals are not considered a concession and therefore these modifications are not considered a TDR. As of September 30, 2021, the number of loans in deferral or in the process of being modified have returned to pre-COVID-19 levels.

During the nine-month periods ended September 30, 2021 and 2020, loans with a carrying value of $45 million and $50 million, respectively, were modified in TDRs.