LENDING ACTIVITIES |
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LENDING ACTIVITIES | 6. Lending Activities
The following table presents the composition of Mortgage and other loans receivable, net:
(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 19 percent and 10 percent, respectively, at March 31, 2022 and 21 percent and 10 percent, respectively, at December 31, 2021). (b) Includes loans held for sale which are carried at lower of cost or market and are collateralized primarily by apartments. As of March 31, 2022 and December 31, 2021, the net carrying value of these loans were $105 million and $15 million, respectively. (c)Does not include allowance for credit losses of $106 million and $71 million, respectively, at March 31, 2022 and December 31, 2021, 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 March 31, 2022, $12 million and $210 million of residential mortgage loans and commercial mortgage loans, respectively, were placed on nonaccrual status. As of December 31, 2021, $7 million and $226 million of residential mortgage loans and commercial mortgage loans, respectively, were placed on nonaccrual status. Accrued interest is presented separately and is included in Accrued Investment Income on the Condensed Consolidated Balance Sheets. As of March 31, 2022, accrued interest receivable was $13 million and $127 million associated with residential mortgage loans and commercial mortgage loans, respectively. As of December 31, 2021, accrued interest receivable was $12 million and $126 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:
(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 March 31, 2022 and 1.9X at December 31, 2021. The debt service coverage ratios have been updated within the last three 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 57 percent at March 31, 2022 and was 57 percent at December 31, 2021. The loan-to-value ratios have been updated within the last three months.The following table presents the credit quality performance indicators for commercial mortgages:
(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 6 to the Consolidated Financial Statements in the 2021 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:
*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 For a discussion of our accounting policy for evaluating Mortgage and other loans receivable for impairment see Note 6 to the Consolidated Financial Statements in the 2021 Annual Report. The following table presents a rollforward of the changes in the allowance for credit losses on Mortgage and other loans receivable(a):
Our expectations and models used to estimate the allowance for losses on commercial and residential mortgage loans are regularly 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. During the three-month periods ended March 31, 2022 and 2021, loans with a carrying value of $115 million and $46 million, respectively, were modified in TDRs. |