Fair value is a market-based measure considered from the perspective of a market participant. Therefore, even when market assumptions are not readily available, the Company's own assumptions are set to reflect those which it believes market participants would use in pricing an asset or liability at the measurement date. The fair value measurements of financial instruments held or issued by the Company are determined through the use of observable market data when available. Market data is obtained from a variety of third-party sources, including dealer quotes. If dealer quotes are not available for an instrument that is infrequently traded, the Company uses alternate valuation methods, including either dealer quotes for similar instruments or modeling using market data inputs. The use of alternate valuation methods generally requires considerable judgment in the application of estimates and assumptions and changes to such estimates and assumptions may produce materially different fair values.

The accounting guidance for fair value measurement establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available and reliable. Observable inputs are those the Company believes that market participants would use in pricing an asset or liability based on available market data. Unobservable inputs are those that reflect the Company's beliefs about the assumptions market participants would use in pricing an asset or liability based on the best information available. The fair value hierarchy is broken down into three levels based on the observability and reliability of inputs, as follows:

The availability of observable inputs can vary from product to product and period to period and is affected by a wide variety of factors, including, for example, the type of product, whether the product is new and not yet established in the marketplace, and other characteristics particular to the product. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the Company assigns the level in the fair value hierarchy for which the fair value measurement in its entirety falls, based on the least observable input that is significant to the fair value measurement.

Financial assets, excluding derivative assets, held by the Company primarily consist of investments in debt securities. Substantially all of the Company's investments are priced by independent third parties, including pricing services and brokers. Typically the Company receives one pricing service value or broker quote for each instrument, which represents a non-binding indication of value. The Company reviews the assumptions, inputs and methodologies used by pricing services and brokers to obtain reasonable assurance that the prices used in its valuations reflect fair value. When the Company believes a third-party quotation differs significantly from its internally developed expectation of fair value, whether higher or lower, the Company reviews its data or assumptions with the provider. This review includes comparing significant assumptions such as prepayment speeds, default ratios, forward yield curves, credit spreads and other significant quantitative inputs to internal assumptions, and working with the price provider to reconcile the differences. The price provider may subsequently provide an updated price. In the event that the price provider does not update its price, and the Company still does not agree with the price provided, the Company will try to obtain a price from another third-party provider, such as a broker, or use an internally developed price which it believes represents the fair value of the investment. The fair values of investments for which internal prices were used were not significant to the aggregate fair value of the Company's investment portfolio as of September 30, 2013 or December 31, 2012. All challenges to third-party prices are reviewed by staff of the Company with relevant expertise to ensure reasonableness of assumptions.

In addition to challenging pricing assumptions, the Company obtains reports from the independent accountants for significant third-party pricing services attesting to the effectiveness of the controls over data provided to the Company. These reports are obtained annually and are reviewed by the Company to ensure key controls are applied by the pricing services, and that appropriate user controls are in place at the third-party pricing services organization to ensure proper measurement of the fair values of its investments. In the event that any controls in these reports are deemed as ineffective by independent accountants, the Company will take the necessary actions to ensure that internal user controls are in place to mitigate the control risks. No deficiencies were noted for significant third-party pricing services used.

Financial liabilities, excluding derivative liabilities, issued by the Company primarily consist of investment agreements and medium-term notes (“MTNs”) within its wind-down operations, debt issued for general corporate purposes and debt in VIEs. Investment agreements, MTNs, and corporate debt are typically recorded at face value adjusted for premiums or discounts. Financial liabilities that the Company has elected to fair value or that require fair value reporting or disclosures are valued based on the estimated value of the underlying collateral, the Company's or a third-party's estimate of discounted cash flow model estimates, or quoted market values for similar products. These valuations include adjustments for expected nonperformance risk of the Company.

The Company's derivative liabilities are primarily insured credit derivatives that reference structured pools of cash securities and CDSs. The Company generally insured the most senior liabilities of such transactions, and at the inception of transactions its exposure generally had more subordination than needed to achieve triple-A ratings from credit rating agencies. The types of collateral underlying its insured derivatives consist of cash securities and CDSs referencing primarily corporate, asset-backed, residential mortgage-backed, commercial mortgage-backed, CRE loans, and CDO securities.

The Company's insured credit derivative contracts are non-traded structured credit derivative transactions. Since insured derivatives are highly customized and there is generally no observable market for these derivatives, the Company estimates their fair values in a hypothetical market based on internal and third-party models simulating what a similar company would charge to assume the Company's position in the transaction at the measurement date. This pricing would be based on the expected loss of the exposure. The Company reviews its valuation model results on a quarterly basis to assess the appropriateness of the assumptions and results in light of current market activity and conditions. This review is performed by internal staff with relevant expertise. If live market spreads or securities prices are observable for similar transactions, those spreads are an integral part of the analysis. New insured transactions that resemble existing (previously insured) transactions, if any, would be considered, as well as negotiated settlements of existing transactions.

The Company may from time to time make changes in its valuation techniques if the change results in a measurement that it believes is equally or more representative of fair value under current circumstances.

All significant financial assets and liabilities, including derivative assets and liabilities, are reviewed by committees created by the Company to ensure compliance with the Company's policies and risk procedures in the development of fair values of financial assets and liabilities. These valuation committees review, among other things, key assumptions used for internally developed prices, significant changes in sources and uses of inputs, including changes in model approaches, and any adjustments from third-party inputs or prices to internally developed inputs or prices. The committees also review any significant impairment or improvements in fair values of the financial instruments from prior periods. From time to time, these committees will reach out to the Company's valuation experts to better understand key methods and assumptions used for the determination of fair value, including understanding significant changes in fair values. These committees are comprised of senior finance team members with the relevant experience in the financial instruments their committee is responsible for. For each quarter, these committees document their agreement with the fair values developed by management of the Company as reported in the quarterly and annual financial statements.

Valuation techniques for financial instruments measured at fair value or disclosed at fair value are described below.

Fixed-Maturity Securities (including short-term investments) Held as Available-For-Sale, Fixed-Maturity Securities at Fair Value, Investments Pledged as Collateral, Investments Held-to-Maturity, and Other Investments

Fixed-maturity securities (including short-term investments) held as AFS, fixed-maturity securities at fair value, investments pledged as collateral, and other investments include investments in U.S. Treasury and government agencies, foreign governments, corporate obligations, mortgage-backed securities (“MBS”) and ABS (including CMBS and CDOs), state and municipal bonds and perpetual debt and equity securities (including money market mutual funds).

These investments are generally valued based on recently executed transaction prices or quoted market prices. When quoted market prices are not available, fair value is generally determined using quoted prices of similar investments or a valuation model based on observable and unobservable inputs. Inputs vary depending on the type of investment. Observable inputs include contractual cash flows, interest rate yield curves, CDS spreads, prepayment and volatility scores, diversity scores, cross-currency basis index spreads, and credit spreads for structures similar to the financial instrument in terms of issuer, maturity and seniority. Unobservable inputs include cash flow projections and the value of any credit enhancement.

The fair value of the held-to-maturity (“HTM”) investments is determined using discounted cash flow models. Key inputs include unobservable cash flows projected over the expected term of the investment discounted using observable interest rate yield curves of similar securities.

Investments based on quoted market prices of identical investments in active markets are classified as Level 1 of the fair value hierarchy. Level 1 investments generally consist of U.S. Treasury and foreign government and agency investments. Quoted market prices of investments in less active markets, as well as investments which are valued based on other than quoted prices for which the inputs are observable, such as interest rate yield curves, are categorized in Level 2 of the fair value hierarchy. Investments that contain significant inputs that are not observable are categorized as Level 3.

Cash and Cash Equivalents, Receivable for Investments Sold, Net Cash Collateral Pledged to Swap Counterparties, Payable for Investments Purchased, Secured Loan and Accrued Investment Income

The carrying amounts of cash and cash equivalents, receivable for investments sold, net cash collateral pledged to swap counterparties, payable for investments purchased, secured loan and accrued investment income approximate fair values due to the short-term nature and credit worthiness of these instruments.

Loans receivable at fair value are comprised of loans held by consolidated VIEs consisting of residential mortgage loans, commercial mortgage loans and other whole business loans. Fair values of residential mortgage loans are determined using quoted prices for MBS issued by the respective VIE and adjustments for the fair values of the financial guarantees provided by MBIA Corp. on the related MBS. Fair values of commercial mortgage loans and other whole business loans are valued based on quoted prices of similar collateralized MBS. Loans receivable at fair value are categorized in Level 3 of the fair value hierarchy.

Loan repurchase commitments are obligations owed by the sellers/servicers of mortgage loans to either MBIA as reimbursement of paid claims or to the RMBS trusts as defined in the transaction documents. Loan repurchase commitments are assets of the consolidated VIEs. This asset represents the rights of MBIA against the sellers/servicers for breaches of representations and warranties that the securitized residential mortgage loans sold to the trust to comply with stated underwriting guidelines and for the sellers/servicers to cure, replace, or repurchase mortgage loans. Fair value measurements of loan repurchase commitments represent the amounts owed by the sellers/servicers to MBIA as reimbursement of paid claims. Loan repurchase commitments are not securities and no quoted prices or comparable market transaction information are observable or available. Loan repurchase commitments at fair value are categorized in Level 3 of the fair value hierarchy. Fair values of loan repurchase commitments are determined using discounted cash flow techniques based on inputs including:

• breach rates representing the rate at which the sellers/servicers failed to comply with stated representations and warranties;

• recovery rates representing the estimates of future cash flows for the asset, including estimates about possible variations in the amount of cash flows expected to be collected;

• expectations about possible variations in the timing of collections of the cash flows; and

The fair values of investment agreements are determined using discounted cash flow techniques based on contractual cash flows and observable interest rates currently being offered for similar agreements with comparable maturity dates. Investment agreements contain collateralization and termination agreements that substantially mitigate the nonperformance risk of the Company. As the terms of the notes are private, and the contract cash flows are not observable, these investment agreements are categorized as Level 3 of the fair value hierarchy.

The fair values of certain MTNs are based on quoted market prices provided by third-party sources, where available. When quoted market prices are not available, the Company applies a matrix pricing grid based on the quoted market prices received and the MTNs' stated maturity and interest rate to determine fair value. Nonperformance risk is included in the quoted market prices and the matrix pricing grid.

The Company has elected to record these MTNs at fair value as they contain embedded derivatives which cannot accurately be separated from the host debt instrument and fair valued separately, therefore, these MTNs are carried at fair value with changes in fair value reflected in earnings. The remaining MTNs, which are not carried at fair value, do not contain embedded derivatives.

As these MTNs are illiquid and the prices reflect significant unobservable inputs, they are categorized as Level 3 of the fair value hierarchy.

The fair values of VIE notes are determined based on recently executed transaction prices or quoted prices where observable. When position-specific quoted prices are not observable, fair values are based on quoted prices of similar securities. Fair values based on quoted prices of similar securities may be adjusted for factors unique to the securities, including any credit enhancement. When observable quoted prices are not available, fair value is determined based on discounted cash flow techniques of the underlying collateral using observable and unobservable inputs. Observable inputs include interest rate yield curves and bond spreads of similar securities. Unobservable inputs include the value of any credit enhancement. VIE notes are categorized in Level 2 or Level 3 of the fair value hierarchy based on the lowest level input that is significant to the fair value measurement in its entirety.

Long-term debt consists of notes, debentures, surplus notes and accrued interest on this debt. The fair value of long-term notes, debentures and surplus notes are estimated based on quoted prices for the identical or similar securities. The fair value of the accrued interest expense on the surplus notes due 2033 is determined based on the scheduled interest payments discounted by the market's perception of the credit risk related to the repayment of the surplus notes. The credit risk related to the repayment of the surplus notes is based on recent trades of the surplus notes. The deferred interest payment will be due on the first business day on or after which the Company obtains approval to make such payment.

The carrying amounts of accrued interest expense on all other long-term debt approximate fair value due to the short-term nature of these instruments.

The asset/liability products business has entered into derivative transactions primarily consisting of interest rate swaps, cross currency swaps, and CDS contracts. Fair values of over-the-counter derivatives are determined using valuation models based on observable inputs, nonperformance risk of the Company's own credit and nonperformance risk of the counterparties. Observable and market-based inputs include interest rate yields, credit spreads and volatilities. These derivatives are categorized in Level 2 or Level 3 of the fair value hierarchy based on the input that is significant to the fair value measurement in its entirety.

The Company has policies and procedures in place regarding counterparties, including review and approval of the counterparty and the Company's exposure limit, collateral posting requirements, collateral monitoring and margin calls on collateral. The Company manages counterparty credit risk on an individual counterparty basis through master netting arrangements covering derivative transactions in the asset/liability products and corporate segments. These agreements allow the Company to contractually net amounts due from a counterparty with those amounts due to such counterparty when certain triggering events occur. The Company only executes swaps under master netting agreements, which typically contain mutual credit downgrade provisions that generally provide the ability to require assignment or termination in the event either the Company or the counterparty is downgraded below a specified credit rating. The netting agreements minimize the potential for losses related to credit exposure and thus serve to mitigate the Company's nonperformance risk under these derivatives.

In certain cases, the Company also manages credit risk through collateral agreements that give the Company the right to hold or the obligation to provide collateral when the current market value of derivative contracts exceeds an exposure threshold. Under these arrangements, the Company may provide U.S. Treasury and other highly rated securities or cash to secure the derivative. The delivery of high-quality collateral can minimize credit exposure and mitigate the potential for nonperformance risk impacting the fair values of the derivatives.

The derivative contracts insured by the Company cannot be legally traded and generally do not have observable market prices. The Company determines the fair values of insured credit derivatives using valuation models. The fair valuation models are consistently applied from period to period, with refinements to the fair value estimation approach being applied as and when the information becomes available. Negotiated settlements are also considered when determining fair value to provide the best estimate of how another market participant would evaluate fair value.

Approximately 98% of the balance sheet fair value of insured credit derivatives as of September 30, 2013 was valued based on the Binomial Expansion Technique (“BET”) Model. Approximately 2% of the balance sheet fair value of insured credit derivatives as of September 30, 2013 was valued based on the internally developed Direct Price Model and the dual-default model. The valuation of insured derivatives includes the impact of its credit standing. All of these derivatives are categorized as Level 3 of the fair value hierarchy as their fair value is derived using significant unobservable inputs.

The BET Model estimates what a bond insurer would charge to guarantee a transaction at the measurement date, based on the market-implied default risk of the underlying collateral and the remaining structural protection in a deductible or subordination.

Inputs to the process of determining fair value for structured transactions using the BET Model include estimates of collateral loss, allocation of loss to separate tranches of the capital structure, and calculation of the change in value.

• Estimates of aggregated collateral losses are calculated by reference to the following (described in further detail under “BET Model Inputs” below):

• credit spreads of underlying collateral based on actual spreads or spreads on similar collateral with similar ratings, or in some cases, are benchmarked; for collateral pools where the spread distribution is characterized by extremes, each segment of the pool is modeled separately instead of using an overall pool average;

• diversity score of the collateral pool as an indication of correlation of collateral defaults; and

• Allocation of losses to separate tranches of the capital structure according to priority of payments in a transaction.

• The inception-to-date unrealized gain or loss on a transaction is the difference between the original price of the risk (the original market-implied expected loss) and the current price of the risk based on the assumed market-implied expected losses derived from the model.

The average spread of collateral is a key input as the Company assumes credit spreads reflect the market's assessment of default probability for each piece of collateral. Spreads are obtained from market data sources published by third parties (e.g., dealer spread tables for assets most closely resembling collateral within the Company's transactions) as well as collateral-specific spreads on the underlying reference obligations provided by trustees or market sources. Also, when these sources are not available, the Company benchmarks spreads for collateral against market spreads or prices. This data is reviewed on an ongoing basis for reasonableness and applicability to the Company's derivative portfolio. The Company also calculates spreads based on quoted prices and on internal assumptions about expected life, when pricing information is available and spread information is not.

The Company uses the spread hierarchy listed below in determining which source of spread information to use, with the rule being to use CDS spreads where available and cash security spreads as the next alternative.

There were some transactions where the Company incorporated multiple levels within the hierarchy, including using actual collateral-specific credit spreads in combination with a calculated spread based on an assumed relationship. In those cases, MBIA classified the transaction as being benchmarked from the most relevant spread source even though the majority of the average spread was from actual collateral-specific spreads. As of September 30, 2013, sector-specific spreads were used in 8% of the transactions valued using the BET Model. Corporate spreads were used in 50% of the transactions and spreads benchmarked from the most relevant spread source were used for 42% of the transactions. The spread source can also be identified by whether or not it is based on collateral weighted average rating factor (“WARF”). No collateral-specific spreads are based on WARF. Sector-specific spreads, corporate spreads and some benchmarked spreads are based on WARF. WARF-sourced and/or ratings-sourced credit spreads were used for 76% of the transactions.

Over time, the data inputs change as new sources become available, existing sources are discontinued or are no longer considered to be reliable or the most appropriate. It is always the Company's objective to use more observable spread hierarchies defined above. However, the Company may on occasion move to less observable spread inputs due to the discontinuation of data sources or due to the Company considering certain spread inputs no longer representative of market spreads.

Diversity scores are a means of estimating the diversification in a portfolio. The diversity score estimates the number of uncorrelated assets that are assumed to have the same loss distribution as the actual portfolio of correlated assets. While diversity score is a required input into the BET model, due to current high levels of default within the collateral of the structures, diversity score does not have a significant impact on valuation.

The recovery rate represents the percentage of par expected to be recovered after an asset defaults, indicating the severity of a potential loss. MBIA generally uses rating agency recovery assumptions which may be adjusted to account for differences between the characteristics and performance of the collateral used by the rating agencies and the actual collateral in MBIA-insured transactions. The Company may also adjust rating agency assumptions based on the performance of the collateral manager and on empirical market data.

The Company's valuation methodology for insured credit derivative liabilities incorporates MBIA Corp.'s own nonperformance risk. The Company calculates the fair value by discounting the market value loss estimated through the BET Model at discount rates which include MBIA Corp.'s CDS spreads as of September 30, 2013. The CDS spreads assigned to each deal are based on the weighted average life of the deal. The Company limits the nonperformance impact so that the derivative liability could not be lower than MBIA Corp.'s recovery derivative price multiplied by the unadjusted derivative liability.

As of September 30, 2013 and December 31, 2012, the Company's net insured derivative liability was $1.4 billion and $2.9 billion, respectively, and was primarily related to the fair values of insured credit derivatives, based on the results of the aforementioned pricing models. In the current environment, the most significant driver of changes in fair value is MBIA Corp.'s nonperformance risk. In aggregate, the nonperformance calculation resulted in a pre-tax net insured derivative liability that was $548 million and $4.4 billion lower than the net liability that would have been estimated if MBIA Corp. excluded nonperformance risk in its valuation as of September 30, 2013 and December 31, 2012, respectively. Nonperformance risk is a fair value concept and does not contradict MBIA Corp.'s internal view, based on fundamental credit analysis of MBIA Corp.'s economic condition, that MBIA Corp. will be able to pay all claims when due.

Stock warrants issued by the Company are recorded at fair value based on a modified Black-Scholes model. Inputs into the warrant valuation include interest rates, stock volatilities and dividend data. As all significant inputs are market-based and observable, warrants are categorized in Level 2 of the fair value hierarchy.

Gross Financial Guarantees —The fair value of gross financial guarantees is determined using discounted cash flow techniques based on inputs that include (i) assumptions of expected losses on financial guarantee policies where loss reserves have not been recognized, (ii) amount of losses expected on financial guarantee policies where loss reserves have been established, net of expected recoveries, (iii) the cost of capital reserves required to support the financial guarantee liability, (iv) operating expenses, and (v) discount rates. The MBIA Corp. CDS spread and recovery rate are used as the discount rate for MBIA Corp., while the CDS spread and recovery rate of a similar municipal bond insurance company are used as the discount rate for National, as National does not have a published CDS spread and recovery rate.

The carrying value of the Company's gross financial guarantees consists of unearned premium revenue and loss and LAE reserves, net of the insurance loss recoverable as reported on MBIA's consolidated balance sheets.

Ceded Financial Guarantees —The fair value of ceded financial guarantees is determined by applying the percentage ceded to reinsurers to the related fair value of the gross financial guarantees. The carrying value of ceded financial guarantees consists of prepaid reinsurance premiums and reinsurance recoverable on paid and unpaid losses as reported within “Other assets” on the Company's consolidated balance sheets.

The following tables provide quantitative information regarding the significant unobservable inputs used by the Company for assets and liabilities measured at fair value on a recurring basis as of September 30, 2013 and December 31, 2012. These tables exclude inputs used to measure fair value that are not developed by the Company, such as broker prices and other third-party pricing service valuations.

		Fair Value
		as of				Range
		September 30,				(Weighted
In millions		2013		Valuation Techniques	Unobservable Input	Average)
Assets of consolidated VIEs:
	Loans receivable at fair value	$	1,704	Quoted market prices adjusted for financial	Impact of financial guarantee	0% - 17% (4%)
				guarantees provided to VIE obligations
	Loan repurchase commitments		1,116	Discounted cash flow	Recovery rates	0% - 98% (81%)

Liabilities of consolidated VIEs:
	Variable interest entity notes		745	Quoted market prices of VIE assets	Impact of financial guarantee	0% - 27% (10%)
				adjusted for financial guarantees provided

Credit derivative liabilities, net:
	CMBS		956	BET Model	Recovery rates	25% - 90% (60%)
					Nonperformance risk	12% - 57% (28%)
					Weighted average life (in years)	1.4 - 28.3 (3.5)
					CMBS spreads	1% - 27% (13%)
	Multi-sector CDO		16	Direct Price Model	Nonperformance risk	57% - 57% (57%)
	Other		391	BET Model	Recovery rates	42% - 70% (46%)
					Nonperformance risk	18% - 31% (27%)
					Weighted average life (in years)	0.2 - 3.8 (2.2)

		Fair Value
		as of				Range
		December 31,				(Weighted
In millions		2012		Valuation Techniques	Unobservable Input	Average)
Assets of consolidated VIEs:
	Loans receivable at fair value	$	1,881	Quoted market prices adjusted for financial	Impact of financial guarantee	0% - 14% (3%)
				guarantees provided to VIE obligations
	Loan repurchase commitments		1,086	Discounted cash flow	Recovery rates	10% - 75% (47%)
					Breach rates	66% - 94% (78%)

Liabilities of consolidated VIEs:
	Variable interest entity notes		1,932	Quoted market prices of VIE assets	Impact of financial guarantee	0% - 23% (6%)
				adjusted for financial guarantees provided

Credit derivative liabilities, net:
	CMBS		1,590	BET Model	Recovery rates	21% - 90% (51%)
					Nonperformance risk	19% - 59% (58%)
					Weighted average life (in years)	0.1 - 5.6 (4.4)
					CMBS spreads	1% - 23% (13%)
	Multi-sector CDO		525	Direct Price Model	Nonperformance risk	59% - 59% (59%)
	Other		806	BET Model	Recovery rates	42% - 75% (47%)
					Nonperformance risk	42% - 59% (58%)
					Weighted average life (in years)	0.1 - 19.6 (3.0)

The significant unobservable input used in the fair value measurement of the Company's loans receivable at fair value of consolidated VIEs is the impact of the financial guarantee. The fair value of loans receivable is calculated by subtracting the value of the financial guarantee from the market value of VIE liabilities. The value of a financial guarantee is estimated by the Company as the present value of expected cash payments under the policy. As expected cash payments provided by the Company under the insurance policy increase, there is a lower expected cash flow on the underlying loans receivable of the VIE. This results in a lower fair value of the loans receivable in relation to the obligations of the VIE.

The significant unobservable inputs used in the fair value measurement of the Company's loan repurchase commitments of consolidated VIEs are the recovery rates. Recovery rates reflect the estimates of future cash flows reduced for litigation delays and risks and/or potential financial distress of the sellers/servicers. The estimated recoveries of the loan repurchase commitments may differ from the actual recoveries that may be received in the future. Significant increases or decreases in the recovery rates would result in significantly higher or lower fair values of the loan repurchase commitments, respectively. Additionally, changes in the legal environment and the ability of the counterparties to pay would impact the recovery rate assumptions, which could significantly impact the fair value measurement.

The significant unobservable input used in the fair value measurement of the Company's VIE notes of consolidated VIEs is the impact of the financial guarantee. The fair value of VIE notes is calculated by adding the value of the financial guarantee to the market value of VIE assets. The value of a financial guarantee is estimated by the Company as the present value of expected cash payments under the policy. As the value of the guarantee provided by the Company to the obligations issued by the VIE increases, the credit support adds value to the liabilities of the VIE. This results in an increase in the fair value of the liabilities of the VIE.

The significant unobservable inputs used in the fair value measurement of MBIA Corp.'s CMBS credit derivatives, which are valued using the BET Model, are CMBS spreads, recovery rates, nonperformance risk and weighted average life. The CMBS spread is an indicator of credit risk of the collateral securities. The recovery rate represents the percentage of notional expected to be recovered after an asset defaults, indicating the severity of a potential loss. The nonperformance risk is an assumption of MBIA Corp.'s own ability to pay and whether MBIA Corp. will have the necessary resources to pay the obligations as they come due. Weighted average life is based on the Company's estimate of when the principal of the underlying collateral of the CMBS structure will be repaid. A significant increase or decrease in CMBS spreads would result in an increase or decrease in the fair value of the derivative liability, respectively. A significant increase in weighted average life can result in an increase or decrease in the fair value of the derivative liability, depending on the discount rate and the timing of significant losses. Any significant increase or decrease in recovery rates, or MBIA Corp.'s nonperformance risk would result in a decrease or increase in the fair value of the derivative liabilities, respectively. CMBS spreads, recovery rates, nonperformance risk and weighted average lives are determined independently. Changes in one input will not necessarily have any impact on the other inputs.

The significant unobservable input used in the fair value measurement of MBIA Corp.'s multi-sector CDO credit derivatives, which are valued using the Direct Price Model, is nonperformance risk. The nonperformance risk is an assumption of MBIA Corp.'s own ability to pay and whether MBIA Corp. will have the necessary resources to pay the obligations as they come due. Any significant increase or decrease in MBIA Corp.'s nonperformance risk would result in a decrease or increase in the fair value of the derivative liabilities, respectively.

The significant unobservable inputs used in the fair value measurement of MBIA Corp.'s other credit derivatives, which are valued using the BET Model, are recovery rates, nonperformance risk and weighted average life. The recovery rate represents the percentage of notional expected to be recovered after an asset defaults, indicating the severity of a potential loss. The nonperformance risk is an assumption of MBIA Corp.'s own ability to pay and whether MBIA Corp. will have the necessary resources to pay the obligations as they come due. Weighted average life is based on MBIA Corp.'s estimate of when the principal of the underlying collateral will be repaid. A significant increase in weighted average life can result in an increase or decrease in the fair value of the derivative liability, depending on the discount rate and the timing of significant losses. Any significant increase or decrease in recovery rates or MBIA Corp.'s nonperformance risk would result in a decrease or increase in the fair value of the derivative liabilities, respectively. Recovery rates, nonperformance risk and weighted average lives are determined independently. Changes in one input will not necessarily have any impact on the other inputs.

The following tables present the fair value of the Company's assets (including short-term investments) and liabilities measured and reported at fair value on a recurring basis as of September 30, 2013 and December 31, 2012:

				Fair Value Measurements at Reporting Date Using
				Quoted Prices in		Significant
				Active Markets		Other		Significant			Counterparty
				for Identical		Observable		Unobservable			and Cash		Balance as of
				Assets		Inputs		Inputs			Collateral		September 30,
In millions				(Level 1)		(Level 2)		(Level 3)			Netting		2013
Assets:
Fixed-maturity investments:
	U.S. Treasury and government agency			$	424	$	137	$	0		$	0	$	561
	State and municipal bonds				0		1,551		62	⁽¹⁾		0		1,613
	Foreign governments				87		109		5	⁽¹⁾		0		201
	Corporate obligations				0		1,717		47	⁽¹⁾		0		1,764
	Mortgage-backed securities:
		Residential mortgage-backed agency			0		945		17	⁽¹⁾		0		962
		Residential mortgage-backed non-agency			0		79		0			0		79
		Commercial mortgage-backed			0		26		14	⁽¹⁾		0		40
	Asset-backed securities:
		Collateralized debt obligations			0		70		88	⁽¹⁾		0		158
		Other asset-backed			0		89		57	⁽¹⁾		0		146
			Total fixed-maturity investments		511		4,723		290			0		5,524
Money market securities					910		3		0			0		913
Perpetual debt and equity securities					27		14		11	⁽¹⁾		0		52
Cash and cash equivalents					1,057		0		0			0		1,057
Derivative assets:
	Non-insured derivative assets:
		Interest rate derivatives			0		57		0			(53)		4
			Total derivative assets		0		57		0			(53)		4

				Fair Value Measurements at Reporting Date Using
				Quoted Prices in		Significant
				Active Markets		Other		Significant			Counterparty
				for Identical		Observable		Unobservable			and Cash		Balance as of
				Assets		Inputs		Inputs			Collateral		September 30,
In millions				(Level 1)		(Level 2)		(Level 3)			Netting		2013
Assets of consolidated VIEs:
	Corporate obligations				0		46		48	⁽¹⁾		0		94
	Mortgage-backed securities:
		Residential mortgage-backed non-agency			0		255		4	⁽¹⁾		0		259
		Commercial mortgage-backed			0		103		2	⁽¹⁾		0		105
	Asset-backed securities:
		Collateralized debt obligations			0		33		20	⁽¹⁾		0		53
		Other asset-backed			0		65		50	⁽¹⁾		0		115
	Money market securities				156		0		0			0		156
	Cash				46		0		0			0		46
	Loans receivable				0		0		1,704			0		1,704
	Loan repurchase commitments				0		0		1,116			0		1,116
Total assets				$	2,707	$	5,299	$	3,245		$	(53)	$	11,198
Liabilities:
Medium-term notes				$	0	$	0	$	204	⁽¹⁾	$	0	$	204
Derivative liabilities:
	Insured derivatives:
		Credit derivatives			0		7		1,363			0		1,370
	Non-insured derivatives:
		Interest rate derivatives			0		195		0			(195)		0
		Currency derivatives			0		1		0			(1)		0
Other liabilities:
	Warrants				0		48		0			0		48
Liabilities of consolidated VIEs:
	Variable interest entity notes				0		1,681		745			0		2,426
	Derivative liabilities:
		Currency derivatives			0		0		15	⁽¹⁾		0		15
Total liabilities				$	0	$	1,932	$	2,327		$	(196)	$	4,063
____________
(1) - Unobservable inputs are either not developed by the Company or do not significantly impact the overall fair values of the aggregate financial assets and liabilities.

				Fair Value Measurements at Reporting Date Using
				Quoted Prices in		Significant
				Active Markets		Other		Significant			Counterparty
				for Identical		Observable		Unobservable			and Cash		Balance as of
				Assets		Inputs		Inputs			Collateral		December 31,
In millions				(Level 1)		(Level 2)		(Level 3)			Netting		2012
Assets:
Fixed-maturity investments:
	U.S. Treasury and government agency			$	784	$	100	$	0		$	0	$	884
	State and municipal bonds				0		1,429		103	⁽¹⁾		0		1,532
	Foreign governments				86		107		3	⁽¹⁾		0		196
	Corporate obligations				0		1,140		76	⁽¹⁾		0		1,216
	Mortgage-backed securities:
		Residential mortgage-backed agency			0		988		0			0		988
		Residential mortgage-backed non-agency			0		94		4	⁽¹⁾		0		98
		Commercial mortgage-backed			0		20		28	⁽¹⁾		0		48
	Asset-backed securities:
		Collateralized debt obligations			0		65		31	⁽¹⁾		0		96
		Other asset-backed			0		119		26	⁽¹⁾		0		145
			Total fixed-maturity investments		870		4,062		271			0		5,203
Money market securities					585		8		0			0		593
Perpetual debt and equity securities					23		20		14	⁽¹⁾		0		57
Cash and cash equivalents					814		0		0			0		814
Derivative assets:
	Non-insured derivative assets:
		Interest rate derivatives			0		89		5	⁽¹⁾		(90)		4
			Total derivative assets		0		89		5			(90)		4

				Fair Value Measurements at Reporting Date Using
				Quoted Prices in		Significant
				Active Markets		Other		Significant			Counterparty
				for Identical		Observable		Unobservable			and Cash		Balance as of
				Assets		Inputs		Inputs			Collateral		December 31,
In millions				(Level 1)		(Level 2)		(Level 3)			Netting		2012
Assets of consolidated VIEs:
	State and municipal bonds				0		41		0			0		41
	Corporate obligations				0		215		78	⁽¹⁾		0		293
	Mortgage-backed securities:
		Residential mortgage-backed non-agency			0		869		6	⁽¹⁾		0		875
		Commercial mortgage-backed			0		410		7	⁽¹⁾		0		417
	Asset-backed securities:
		Collateralized debt obligations			0		215		125	⁽¹⁾		0		340
		Other asset-backed			0		120		64	⁽¹⁾		0		184
	Money market securities				210		0		0			0		210
	Cash				176		0		0			0		176
	Loans receivable				0		0		1,881			0		1,881
	Loan repurchase commitments				0		0		1,086			0		1,086
Total assets				$	2,678	$	6,049	$	3,537		$	(90)	$	12,174
Liabilities:
Medium-term notes				$	0	$	0	$	165	⁽¹⁾	$	0	$	165
Derivative liabilities:
	Insured derivatives:
		Credit derivatives			0		13		2,921			0		2,934
	Non-insured derivatives:
		Interest rate derivatives			0		287		4	⁽¹⁾		(293)		(2)
		Currency derivatives			0		1		1	⁽¹⁾		0		2
Other liabilities:
	Warrants				0		6		0			0		6
Liabilities of consolidated VIEs:
	Variable interest entity notes				0		1,727		1,932			0		3,659
	Derivative liabilities:
		Interest rate derivatives			0		141		0			0		141
		Currency derivatives			0		0		21	⁽¹⁾		0		21
Total liabilities				$	0	$	2,175	$	5,044		$	(293)	$	6,926
____________
(1) - Unobservable inputs are either not developed by the Company or do not significantly impact the overall fair values of the aggregate financial assets and liabilities.

Level 3 assets at fair value, as of September 30, 2013 and December 31, 2012 represented approximately 29% of total assets measured at fair value. Level 3 liabilities at fair value, as of September 30, 2013 and December 31, 2012 represented approximately 57% and 73%, respectively, of total liabilities measured at fair value.

The following tables present the fair values and carrying values of the Company's assets and liabilities that are disclosed at fair value but not reported at fair value on the Company's consolidated balance sheets as of September 30, 2013 and December 31, 2012:

		Fair Value Measurements at Reporting Date Using
		Quoted Prices in		Significant		Significant		Fair Value		Carry Value
		Active Markets for		Other Observable		Unobservable		Balance as of		Balance as of
		Identical Assets		Inputs		Inputs		September 30,		September 30,
In millions		(Level 1)		(Level 2)		(Level 3)		2013		2013
Assets:
	Other investments	$	0	$	0	$	6	$	6	$	6
	Accrued investment income⁽¹⁾		44		0		0		44		44
	Receivable for investments sold⁽¹⁾		23		0		0		23		23
	Net cash collateral pledged⁽¹⁾		62		0		0		62		62
Assets of consolidated VIEs:
	Investments held-to-maturity		0		0		2,566		2,566		2,809
Total assets		$	129	$	0	$	2,572	$	2,701	$	2,944
Liabilities:
	Investment agreements	$	0	$	0	$	902	$	902	$	760
	Medium-term notes		0		0		1,035		1,035		1,350
	Long-term debt		10		1,282		0		1,292		1,677
	Payable for investments purchased⁽²⁾		150		0		0		150		150
	Secured loan⁽²⁾		0		0		50		50		50
Liabilities of consolidated VIEs:
	Variable interest entity notes		0		0		2,689		2,689		2,959
Total liabilities		$	160	$	1,282	$	4,676	$	6,118	$	6,946
Financial Guarantees:
	Gross	$	0	$	0	$	3,097	$	3,097	$	2,490
	Ceded		0		0		69		69		77
__________
(1) - Reported within "Other assets" on MBIA's consolidated balance sheets.
(2) - Reported within "Other liabilities" on MBIA's consolidated balance sheets.

		Fair Value Measurements at Reporting Date Using
		Quoted Prices in		Significant		Significant		Fair Value		Carry Value
		Active Markets for		Other Observable		Unobservable		Balance as of		Balance as of
		Identical Assets		Inputs		Inputs		December 31,		December 31,
In millions		(Level 1)		(Level 2)		(Level 3)		2012		2012
Assets:
	Other investments	$	0	$	0	$	9	$	9	$	9
	Accrued investment income⁽¹⁾		43		0		0		43		43
	Receivable for investments sold⁽¹⁾		17		0		0		17		17
	Net cash collateral pledged⁽¹⁾		66		0		0		66		66
Assets of consolidated VIEs:
	Investments held-to-maturity		0		0		2,674		2,674		2,829
Total assets		$	126	$	0	$	2,683	$	2,809	$	2,964
Liabilities:
	Investment agreements	$	0	$	0	$	1,175	$	1,175	$	944
	Medium-term notes		0		0		860		860		1,433
	Long-term debt		9		702		0		711		1,732
	Payable for investments purchased⁽²⁾		50		0		0		50		50
Liabilities of consolidated VIEs:
	Variable interest entity notes		0		0		3,147		3,147		3,465
Total liabilities		$	59	$	702	$	5,182	$	5,943	$	7,624
Financial Guarantees:
	Gross	$	0	$	0	$	650	$	650	$	143
	Ceded		0		0		97		97		91
__________
(1) - Reported within "Other assets" on MBIA's consolidated balance sheets.
(2) - Reported within "Other liabilities" on MBIA's consolidated balance sheets.

The following tables present information about changes in Level 3 assets (including short-term investments) and liabilities measured at fair value on a recurring basis for the three months ended September 30, 2013 and 2012:

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended September 30, 2013
																									Change in
																									Unrealized
																									Gains
																									(Losses) for
																									the Period
																									Included in
					Unrealized																				Earnings
					Gains /		Unrealized		Foreign																for Assets
					(Losses)		Gains /		Exchange																still held
	Balance,		Realized		Included		(Losses)		Recognized										Transfers		Transfers				as of
	Beginning		Gains /		in		Included		in OCI or										into		out of		Ending		September 30,
In millions	of Period		(Losses)		Earnings		in OCI		Earnings		Purchases		Issuances		Settlements		Sales		Level 3⁽¹⁾		Level 3⁽¹⁾		Balance		2013
Assets:
Foreign governments	$	3	$	0	$	0	$	0	$	0	$	0	$	0	$	(3)	$	0	$	5	$	0	$	5	$	0
Corporate obligations		63		(7)		1		7		2		0		0		(14)		(6)		1		0		47		1
Residential mortgage-
backed agency		3		0		0		0		0		0		0		0		0		17		(3)		17		0
Residential mortgage-
backed non-agency		1		0		0		0		0		0		0		0		0		0		(1)		0		0
Commercial
mortgage-backed		13		0		0		0		0		0		0		(1)		0		2		0		14		0
Collateralized debt
obligations		85		0		0		7		0		0		0		(3)		0		10		(11)		88		0
Other asset-backed		64		0		0		(5)		0		0		0		(4)		0		3		(1)		57		0
State and municipal
bonds		63		0		0		0		0		0		0		(1)		0		0		0		62		0
Perpetual debt and equity securities		10		0		0		0		1		0		0		0		0		0		0		11		0
Assets of
consolidated VIEs:
Corporate obligations		48		0		0		0		0		0		0		0		0		0		0		48		0
Residential mortgage-
backed non-agency		2		0		0		0		0		0		0		0		0		2		0		4		0
Commercial
mortgage-backed		4		0		(1)		0		0		0		0		(1)		0		0		0		2		0
Collateralized debt
obligations		35		0		1		0		0		0		0		(4)		0		0		(12)		20		(1)
Other asset-backed		63		0		(7)		0		0		0		0		(1)		0		1		(6)		50		(1)
Loans receivable		1,790		0		(12)		0		0		0		0		(74)		0		0		0		1,704		(12)
Loan repurchase
commitments		1,115		0		1		0		0		0		0		0		0		0		0		1,116		1
Total assets	$	3,362	$	(7)	$	(17)	$	9	$	3	$	0	$	0	$	(106)	$	(6)	$	41	$	(34)	$	3,245	$	(12)

																									Change in
																									Unrealized
																									(Gains)
																									Losses for
																									the Period
																									Included in
					Unrealized																				Earnings for
					(Gains) /		Unrealized		Foreign																Liabilities
					Losses		(Gains) /		Exchange																still held
	Balance,		Realized		Included		Losses		Recognized										Transfers		Transfers				as of
	Beginning		(Gains) /		in		Included		in OCI or										into		out of		Ending		September 30,
In millions	of Period		Losses		Earnings		in OCI		Earnings		Purchases		Issuances		Settlements		Sales		Level 3⁽¹⁾		Level 3⁽¹⁾		Balance		2013
Liabilities:
Medium-term notes	$	188	$	0	$	9	$	0	$	7	$	0	$	0	$	0	$	0	$	0	$	0	$	204	$	17
Credit derivatives, net		1,648		28		(285)		0		0		0		0		(28)		0		0		0		1,363		(285)
Interest rate
derivatives, net		0		0		0		0		0		0		0		0		0		0		0		0		(15)
Currency
Liabilities of
consolidated VIEs:
VIE notes		824		0		(6)		0		0		0		0		(73)		0		0		0		745		(6)
Currency
derivatives, net		16		0		0		0		(1)		0		0		0		0		0		0		15		(1)
Total liabilities	$	2,676	$	28	$	(282)	$	0	$	6	$	0	$	0	$	(101)	$	0	$	0	$	0	$	2,327	$	(290)
_______________
(1) - Transferred in and out at the end of the period.

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended September 30, 2012
																									Change in
																									Unrealized
																									Gains
																									(Losses) for
																									the Period
																									Included in
					Unrealized																				Earnings for
					Gains /		Unrealized		Foreign																Assets
					(Losses)		Gains /		Exchange																still held
	Balance,		Realized		Included		(Losses)		Recognized										Transfers		Transfers				as of
	Beginning		Gains /		in		Included		in OCI or										into		out of		Ending		September 30,
In millions	of Period		(Losses)		Earnings		in OCI		Earnings		Purchases		Issuances		Settlements		Sales		Level 3⁽¹⁾		Level 3⁽¹⁾		Balance		2012
Assets:
Foreign governments	$	12	$	0	$	0	$	0	$	1	$	9	$	0	$	(10)	$	0	$	0	$	0	$	12	$	0
Corporate obligations		98		0		4		(2)		0		2		0		(13)		0		10		(8)		91		3
Residential mortgage-
backed agency		4		0		0		0		0		0		0		(1)		0		0		(3)		0		0
Residential mortgage-
backed non-agency		33		(1)		0		2		0		0		0		(5)		0		1		(23)		7		0
Commercial
mortgage-backed		27		0		0		1		0		1		0		0		0		1		0		30		0
Collateralized debt
obligations		29		(4)		0		9		0		0		0		(4)		0		4		(4)		30		0
Other asset-backed		69		(2)		0		2		0		1		0		(1)		0		4		0		73		0
State and municipal
bonds		25		0		0		0		0		0		0		(2)		0		71		0		94		0
Perpetual debt and equity securities		13		0		1		0		0		0		0		0		0		0		0		14		0
Assets of
consolidated VIEs:
Corporate obligations		95		0		(10)		0		0		0		0		(2)		0		3		(3)		83		1
Residential mortgage-
backed non-agency		10		0		0		0		0		0		0		(1)		0		2		(3)		8		0
Commercial
mortgage-backed		12		0		1		0		0		0		0		0		0		0		0		13		1
Collateralized debt
obligations		140		0		(5)		2		0		0		0		(1)		0		37		0		173		(2)
Other asset-backed		42		0		(1)		0		0		0		0		(5)		0		30		0		66		1
Loans receivable		1,903		0		61		0		0		0		0		(72)		0		0		0		1,892		61
Loan repurchase
commitments		1,032		0		19		0		0		0		0		0		0		0		0		1,051		19
Total assets	$	3,544	$	(7)	$	70	$	14	$	1	$	13	$	0	$	(117)	$	0	$	163	$	(44)	$	3,637	$	84

																									Change in
																									Unrealized
																									(Gains)
																									Losses for
																									the Period
																									Included in
					Unrealized																				Earnings for
					(Gains) /		Unrealized		Foreign																Liabilities
					Losses		(Gains) /		Exchange																still held
	Balance,		Realized		Included		Losses		Recognized										Transfers		Transfers				as of
	Beginning		(Gains) /		in		Included		in OCI or										into		out of		Ending		September 30,
In millions	of Period		Losses		Earnings		in OCI		Earnings		Purchases		Issuances		Settlements		Sales		Level 3⁽¹⁾		Level 3⁽¹⁾		Balance		2012
Liabilities:
Medium-term notes	$	151	$	0	$	14	$	0	$	3	$	0	$	0	$	0	$	0	$	0	$	0	$	168	$	14
Credit derivatives, net		3,285		(12)		32		0		0		0		0		12		0		0		0		3,317		33
Interest rate
derivatives, net		(4)		0		0		0		0		0		0		0		0		4		0		0		5
Currency
derivatives, net		0		0		0		0		0		0		0		0		0		1		0		1		0
Liabilities of
consolidated VIEs:
VIE notes		1,867		0		128		0		0		0		0		(110)		0		0		0		1,885		128
Currency derivatives,
net		21		0		2		0		0		0		0		0		0		0		0		23		2
Total liabilities	$	5,320	$	(12)	$	176	$	0	$	3	$	0	$	0	$	(98)	$	0	$	5	$	0	$	5,394	$	182
_______________
(1) - Transferred in and out at the end of the period.

Transfers into and out of Level 3 were $41 million and $34 million, respectively, for the three months ended September 30, 2013. Transfers into and out of Level 2 were $34 million and $41 million, respectively, for the three months ended September 30, 2013. Transfers into Level 3 were principally related to RMBS agency, CDOs and foreign governments, where inputs, which are significant to their valuation, became unobservable during the quarter. CDOs and other ABS, comprised the majority of the transferred instruments out of Level 3 where inputs, which are significant to their valuation, became observable during the quarter. These inputs included spreads, prepayment speeds, default speeds, default severities, yield curves observable at commonly quoted intervals, and market corroborated inputs. There were no transfers into or out of Level 1.

Transfers into and out of Level 3 were $168 million and $44 million, respectively, for the three months ended September 30, 2012. Transfers into and out of Level 2 were $44 million and $168 million, respectively, for the three months ended September 30, 2012. Transfers into Level 3 were principally related to state and municipal bonds, CDOs, other ABS and corporate obligations where inputs, which are significant to their valuation, became unobservable during the quarter. RMBS non-agency and corporate obligations comprised the majority of the transferred instruments out of Level 3 where inputs, which are significant to their valuation, became observable during the quarter. These inputs included spreads, prepayment speeds, default speeds, default severities, yield curves observable at commonly quoted intervals, and market corroborated inputs. There were no transfers into or out of Level 1.

All Level 1, 2 and 3 designations are made at the end of each accounting period.

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Nine Months Ended September 30, 2013
																									Change in
																									Unrealized
																									Gains
																									(Losses) for
																									the Period
																									Included in
					Unrealized																				Earnings for
					Gains /		Unrealized		Foreign																Assets
					(Losses)		Gains /		Exchange																still held
	Balance,		Realized		Included		(Losses)		Recognized										Transfers		Transfers				as of
	Beginning		Gains /		in		Included		in OCI or										into		out of		Ending		September 30,
In millions	of Year		(Losses)		Earnings		in OCI		Earnings		Purchases		Issuances		Settlements		Sales		Level 3⁽¹⁾		Level 3⁽¹⁾		Balance		2013
Assets:
Foreign governments	$	3	$	0	$	0	$	0	$	0	$	0	$	0	$	(11)	$	0	$	16	$	(3)	$	5	$	0
Corporate obligations		76		(5)		6		11		0		1		0		(14)		(29)		1		0		47		6
Residential mortgage-
backed agency		0		0		0		0		0		0		0		0		0		20		(3)		17		0
Residential mortgage-
backed non-agency		4		0		0		0		0		0		0		(3)		0		0		(1)		0		0
Commercial
mortgage-backed		28		0		0		4		0		0		0		(2)		(18)		3		(1)		14		0
Collateralized debt
obligations		31		(2)		0		11		0		61		0		(14)		(5)		28		(22)		88		1
Other asset-backed		26		0		0		(5)		0		3		0		(9)		0		47		(5)		57		0
State and municipal
bonds		103		2		0		(1)		0		0		0		(4)		(12)		42		(68)		62		0
Perpetual debt and equity securities		14		0		0		0		0		0		0		0		0		0		(3)		11		0
Assets of
consolidated VIEs:
Corporate obligations		78		(4)		(7)		6		0		0		0		(3)		(25)		3		0		48		0
Residential mortgage-
backed non-agency		6		0		6		0		0		0		0		(7)		0		3		(4)		4		0
Commercial
mortgage-backed		7		0		(1)		0		0		0		0		0		(24)		20		0		2		1
Collateralized debt
obligations		125		0		(8)		5		0		0		0		(5)		(84)		1		(14)		20		2
Other asset-backed		64		0		(7)		0		0		0		0		(10)		(2)		11		(6)		50		3
Loans receivable		1,881		0		208		0		0		0		0		(211)		(174)		0		0		1,704		194
Loan repurchase
commitments		1,086		0		140		0		0		0		0		(110)		0		0		0		1,116		140
Total assets	$	3,532	$	(9)	$	337	$	31	$	0	$	65	$	0	$	(403)	$	(373)	$	195	$	(130)	$	3,245	$	347

																									Change in
																									Unrealized
																									(Gains)
																									Losses for
																									the Period
																									Included in
					Unrealized																				Earnings for
					(Gains) /		Unrealized		Foreign																Liabilities
					Losses		(Gains) /		Exchange																still held
	Balance,		Realized		Included		Losses		Recognized										Transfers		Transfers				as of
	Beginning		(Gains) /		in		Included		in OCI or										into		out of		Ending		September 30,
In millions	of Year		Losses		Earnings		in OCI		Earnings		Purchases		Issuances		Settlements		Sales		Level 3⁽¹⁾		Level 3⁽¹⁾		Balance		2013
Liabilities:
Medium-term notes	$	165	$	0	$	34	$	0	$	5	$	0	$	0	$	0	$	0	$	0	$	0	$	204	$	39
Credit derivatives, net		2,921		1,548		(1,562)		0		0		0		0		(1,548)		0		4		0		1,363		301
Interest rate
derivatives, net		(1)		0		2		0		0		0		0		0		0		0		(1)		0		(21)
Currency
derivatives, net		1		0		0		0		0		0		0		0		0		0		(1)		0		0
Liabilities of
consolidated VIEs:
VIE notes		1,932		0		140		0		0		0		0		(251)		(1,076)		0		0		745		53
Currency derivatives,
net		21		0		(5)		0		(1)		0		0		0		0		0		0		15		(6)
Total liabilities	$	5,039	$	1,548	$	(1,391)	$	0	$	4	$	0	$	0	$	(1,799)	$	(1,076)	$	4	$	(2)	$	2,327	$	366
_______________
(1) - Transferred in and out at the end of the period.

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Nine Months Ended September 30, 2012
																									Change in
																									Unrealized
																									Gains
																									(Losses) for
																									the Period
																									Included in
					Unrealized																				Earnings for
					Gains /		Unrealized		Foreign																Assets
					(Losses)		Gains /		Exchange																still held
	Balance,		Realized		Included		(Losses)		Recognized										Transfers		Transfers				as of
	Beginning		Gains /		in		Included		in OCI or										into		out of		Ending		September 30,
In millions	of Year		(Losses)		Earnings		in OCI		Earnings		Purchases		Issuances		Settlements		Sales		Level 3⁽¹⁾		Level 3⁽¹⁾		Balance		2012
Assets:
Foreign governments	$	11	$	0	$	0	$	0	$	1	$	22	$	0	$	(19)	$	(3)	$	0	$	0	$	12	$	0
Corporate obligations		207		(15)		9		24		0		18		0		(29)		(140)		25		(8)		91		8
Residential mortgage-
backed agency		8		0		0		1		0		0		0		(1)		0		4		(12)		0		0
Residential mortgage-
backed non-agency		17		(1)		0		(1)		0		0		0		(11)		(3)		31		(25)		7		0
Commercial
mortgage-backed		24		0		0		5		0		1		0		0		0		1		(1)		30		0
Collateralized debt
obligations		60		(9)		0		18		0		0		0		(12)		(10)		14		(31)		30		0
Other asset-backed		317		(58)		0		71		0		5		0		(11)		(250)		5		(6)		73		0
State and municipal
bonds		28		0		0		0		0		0		0		(5)		0		71		0		94		0
Perpetual debt and equity securities		11		0		1		1		0		0		0		0		0		4		(3)		14		0
Assets of
consolidated VIEs:
Corporate obligations		69		0		(15)		(6)		0		28		0		(5)		0		15		(3)		83		3
Residential mortgage-
backed non-agency		21		0		6		0		0		0		0		(5)		(15)		5		(4)		8		3
Commercial
mortgage-backed		22		0		3		0		0		0		0		(3)		(8)		5		(6)		13		2
Collateralized debt
obligations		203		0		(5)		(1)		0		0		0		(1)		(74)		51		0		173		5
Other asset-backed		67		0		4		0		0		4		0		(8)		(35)		34		0		66		5
Loans receivable		2,046		0		52		0		0		0		0		(204)		(2)		0		0		1,892		52
Loan repurchase
commitments		1,077		0		(26)		0		0		0		0		0		0		0		0		1,051		(26)
Total assets	$	4,188	$	(83)	$	29	$	112	$	1	$	78	$	0	$	(314)	$	(540)	$	265	$	(99)	$	3,637	$	52

																									Change in
																									Unrealized
																									(Gains)
																									Losses for
																									the Period
																									Included in
					Unrealized																				Earnings for
					(Gains) /		Unrealized		Foreign																Liabilities
					Losses		(Gains) /		Exchange																still held
	Balance,		Realized		Included		Losses		Recognized										Transfers		Transfers				as of
	Beginning		(Gains) /		in		Included		in OCI or										into		out of		Ending		September 30,
In millions	of Year		Losses		Earnings		in OCI		Earnings		Purchases		Issuances		Settlements		Sales		Level 3⁽¹⁾		Level 3⁽¹⁾		Balance		2012
Liabilities:
Medium-term notes	$	165	$	0	$	3	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	168	$	4
Credit derivatives, net		4,790		420		(1,473)		0		0		0		0		(420)		0		0		0		3,317		(538)
Interest rate
derivatives, net		(3)		0		(1)		0		0		0		0		0		0		4		0		0		12
Currency
derivatives, net		0		0		0		0		0		0		0		0		0		1		0		1		0
Liabilities of
consolidated VIEs:
VIE notes		2,889		0		348		0		0		0		0		(369)		(983)		0		0		1,885		292
Credit derivatives, net		80		0		2		0		0		0		0		0		(82)		0		0		0		0
Currency derivatives,
net		17		0		6		0		0		0		0		0		0		0		0		23		6
Total liabilities	$	7,938	$	420	$	(1,115)	$	0	$	0	$	0	$	0	$	(789)	$	(1,065)	$	5	$	0	$	5,394	$	(224)
_______________
(1) - Transferred in and out at the end of the period.

Transfers into and out of Level 3 were $199 million and $132 million, respectively, for the nine months ended September 30, 2013. Transfers into and out of Level 2 were $132 million and $199 million, respectively, for the nine months ended September 30, 2013. Transfers into Level 3 were principally related to other ABS, state and municipal bonds, CDOs, RMBS agency and CMBS where inputs, which are significant to their valuation, became unobservable during the period. State and municipal bonds and CDOs comprised the majority of the transferred instruments out of Level 3 where inputs, which are significant to their valuation, became observable during the period. These inputs included spreads, prepayment speeds, default speeds, default severities, yield curves observable at commonly quoted intervals, and market corroborated inputs. There were no transfers into or out of Level 1.

Transfers into and out of Level 3 were $270 million and $99 million, respectively, for the nine months ended September 30, 2012. Transfers into and out of Level 2 were $99 million and $270 million, respectively, for the nine months ended September 30, 2012. Transfers into Level 3 were principally related to state and municipal bonds, CDOs, other asset backed, RMBS non-agency and corporate obligations where inputs, which are significant to their valuation, became unobservable during the period. CDOs, RMBS non-agency, RMBS agency and corporate obligations comprised the majority of the transferred instruments out of Level 3 where inputs, which are significant to their valuation, became observable during the period. These inputs included spreads, prepayment speeds, default speeds, default severities, yield curves observable at commonly quoted intervals, and market corroborated inputs. There were no transfers into or out of Level 1.

All Level 1, 2 and 3 designations are made at the end of each accounting period.

Gains and losses (realized and unrealized) included in earnings related to Level 3 assets and liabilities for the three months ended September 30, 2013 and 2012 are reported on the Company's consolidated statements of operations as follows:


		Three Months Ended September 30, 2013				Three Months Ended September 30, 2012
				Change in				Change in
				Unrealized				Unrealized
				Gains (Losses)				Gains (Losses)
				for the				for the
				Period Included				Period Included
				in Earnings				in Earnings
				for Assets				for Assets
				and				and
		Total Gains		Liabilities still		Total Gains		Liabilities still
		(Losses)		held as of		(Losses)		held as of
		Included		September 30,		Included		September 30,
In millions		in Earnings		2013		in Earnings		2012
Revenues:
	Unrealized gains (losses) on
	insured derivatives	$	285	$	285	$	(32)	$	(33)
	Realized gains (losses) and other
	settlements on insured derivatives		(28)		0		12		0
	Net gains (losses) on financial instruments
	at fair value and foreign exchange		(24)		(1)		(9)		(16)
	Net investment losses related to
	other-than-temporary impairments		0		0		(7)		0
	Revenues of consolidated VIEs:
	Net gains (losses) on financial instruments
	at fair value and foreign exchange		(11)		(6)		(65)		(49)
Total		$	222	$	278	$	(101)	$	(98)

Gains and losses (realized and unrealized) included in earnings relating to Level 3 assets and liabilities for the nine months ended September 30, 2013 and 2012 are reported on the Company's consolidated statements of operations as follows:


		Nine Months Ended September 30, 2013				Nine Months Ended September 30, 2012
				Change in				Change in
				Unrealized				Unrealized
				Gains (Losses)				Gains (Losses)
				for the				for the
				Period Included				Period Included
				in Earnings				in Earnings
				for Assets				for Assets
				and				and
		Total Gains		Liabilities still		Total Gains		Liabilities still
		(Losses)		held as of		(Losses)		held as of
		Included		September 30,		Included		September 30,
In millions		in Earnings		2013		in Earnings		2012
Revenues:
	Unrealized gains (losses) on
	insured derivatives	$	1,562	$	(301)	$	1,473	$	538
	Realized gains (losses) and other
	settlements on insured derivatives		(1,548)		0		(420)		0
	Net gains (losses) on financial instruments
	at fair value and foreign exchange		(39)		(11)		(8)		(8)
	Net investment losses related to
	other-than-temporary impairments		0		0		(67)		0
	Revenues of consolidated VIEs:
	Net gains (losses) on financial instruments
	at fair value and foreign exchange		193		293		(337)		(254)
Total		$	168	$	(19)	$	641	$	276

The Company elected to record at fair value certain financial instruments of VIEs that have been consolidated in connection with the adoption of the accounting guidance for consolidation of VIEs, among others.

The following table presents the changes in fair value included in the Company's consolidated statements of operations for the three and nine months ended September 30, 2013 and 2012 for all financial instruments for which the fair value option was elected:

The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principal balance outstanding as of September 30, 2013 and December 31, 2012 for loans and VIE notes for which the fair value option was elected:

		As of September 30, 2013							As of December 31, 2012
		Contractual						Contractual
		Outstanding		Fair				Outstanding		Fair
In millions		Principal		Value		Difference		Principal		Value		Difference
Loans receivable at fair value:
	Residential mortgage loans	$	1,932	$	1,622	$	310	$	2,307	$	1,735	$	572
	Residential mortgage loans (90 days or more past due)		221		82		139		244		54		190
	Other loans		0		0		0		22		22		0
	Other loans (90 days or more past due)		0		0		0		197		70		127
Total loans receivable at fair value		$	2,153	$	1,704	$	449	$	2,770	$	1,881	$	889

Variable interest entity notes		$	3,859	$	2,426	$	1,433	$	9,021	$	3,659	$	5,362

Substantially all gains and losses included in earnings during the periods ended September 30, 2013 and December 31, 2012 on loans receivable and VIE notes reported in the preceding table are attributable to credit risk. This is primarily due to the high rate of defaults on loans and the collateral supporting the VIE notes, resulting in depressed pricing of the financial instruments.