Fair Value Of Financial Instruments

6 Months Ended

Jun. 30, 2017

Note 6: Fair Value of Financial Instruments

Fair Value Measurement

Financial Assets

Financial 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, along with its third-party portfolio manager, 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 and its third-party portfolio manager believe 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, its third-party portfolio manager will obtain a price from another third-party provider 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 June 30, 2017 or December 31, 2016. All challenges to third-party prices are reviewed by staff of the Company as well as its third-party portfolio manager with relevant expertise to ensure reasonableness of assumptions. A pricing analysis is reviewed and approved by the Company’s valuation committee.

Financial Liabilities (excluding derivative liabilities)

Financial liabilities, excluding derivative liabilities, issued by the Company primarily consist of debt issued for general corporate purposes within its corporate segment, medium-term notes (“MTNs”), investment agreements, debt issued by consolidated VIEs and warrants. The majority of the 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.

Derivative Liabilities

The Company’s derivative liabilities are primarily interest rate swaps and insured credit derivatives. 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 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. When market spreads or securities prices are observable for similar transactions, those spreads are an integral part of the analysis.

Internal Review Process

All significant financial assets and liabilities are reviewed by the valuation committee to ensure compliance with the Company’s policies and risk procedures in the development of fair values of financial assets and liabilities. The valuation committee reviews, 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 committee also reviews any significant impairment or improvements in fair values of the financial instruments from prior periods. The committee is comprised of senior finance team members with relevant experience in the financial instruments their committee is responsible for. The committee documents its agreement with the fair value measurements reported in the Company’s consolidated financial statements.

Valuation Techniques

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, Investments Carried at Fair Value, Investments Pledged as Collateral, Investments Held-to-Maturity, and Other Investments

These investments include investments in U.S. Treasury and government agencies, state and municipal bonds, foreign governments, corporate obligations, mortgage-backed securities (“MBS”), asset-backed securities (“ABS”), money market securities, and perpetual debt and equity securities.

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 investment in the fixed-income fund was measured at fair value by applying the net asset value per share practical expedient. The investment in the fixed-income fund may be redeemed on a quarterly basis with prior redemption notification of ninety days subject to withdrawal limitations. The investment is required to be held for a minimum of twelve months, and any subsequent quarterly redemption is limited to 25% of the investment or a complete redemption over four consecutive quarters in the amounts of 25%, 33%, 50%, and 100% of the remaining investment balance as of the first, second, third and fourth consecutive quarters, respectively.

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 government agency, foreign government, money market securities and perpetual debt and equity securities. 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, Payable for Investments Purchased, Accrued Investment Income and Interest Payable for Derivatives

The carrying amounts of cash and cash equivalents, receivable for investments sold, payable for investments purchased, accrued investment income and interest payable for derivatives approximate fair values due to the short-term nature and credit worthiness of these instruments. These items are categorized in Level 1 or Level 2 of the fair value hierarchy.

Loans Receivable at Fair Value

Loans receivable at fair value are comprised of loans held by consolidated VIEs consisting of residential mortgage and corporate loans. Fair values of residential mortgage loans are determined using quoted prices for MBS issued by the respective VIE and adjusted for the fair values of the financial guarantees provided by MBIA Corp. on the related MBS. Fair values of corporate loans are based on discounted cash flow methodologies. Fair values of loans receivable at fair value are determined using market prices adjusted for financial guarantees provided to VIE obligations and discounted cash flow techniques and are categorized in Level 3 of the fair value hierarchy.

Loan Repurchase Commitments

Loan repurchase commitments are obligations owed by the sellers/servicers of mortgage loans to MBIA as reimbursement of paid claims. 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. Fair values of loan repurchase commitments are determined using discounted cash flow techniques and are categorized in Level 3 of the fair value hierarchy.

Long-term Debt

The fair value of long-term notes, debentures and surplus notes are estimated based on quoted prices for these or similar securities. The fair value of the accrued interest expense on the surplus notes due in 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 carrying amounts of accrued interest expense on all other long-term debt approximate fair value due to the short-term nature of the interest payment. Long-term debt is categorized in Level 2 of the fair value hierarchy.

Medium-term Notes

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 to determine fair value based on the quoted market prices received for similar instruments and considering the MTNs’ stated maturity and interest rate. Nonperformance risk is included in the quoted market prices and the matrix pricing grid. The Company has elected to measure certain MTNs at fair value on a recurring basis with changes in fair value reflected in earnings. MTNs are categorized in Level 3 of the fair value hierarchy.

Investment Agreements

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 timing and amount of contractual cash flows are not observable, these investment agreements are categorized in Level 3 of the fair value hierarchy.

Variable Interest Entity Notes

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.

Derivatives

The corporate segment has entered into derivative transactions primarily consisting of interest rate swaps. Fair values of over-the-counter derivatives are determined using valuation models based on observable inputs, nonperformance risk of the Company 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 lowest level input that is significant to the fair value measurement in its entirety.

Derivatives—Insurance

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 based on observable inputs and considering nonperformance risk of the Company. Negotiated settlements are also considered to validate the valuation models and to reflect assumptions the Company believes market participants would use.

Valuation Model Overview

For the six months ended June 30, 2017, the Company used an internally developed Direct Price Model to value insured CDS contracts that incorporate market prices or estimated prices of similar securities that are obtained for all collateral within a transaction, the present value of the market-implied potential losses, and nonperformance risk. The valuation of insured derivatives includes the impact of its credit standing. The insured credit derivatives are categorized in Level 3 of the fair value hierarchy based on unobservable inputs that are significant to the fair value measurement in its entirety.

Prior to 2017, the Company used the Binomial Expansion Technique (“BET”) Model and the Direct Price Model to value insured CDS contracts. 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, credit spreads, recovery rates and nonperformance risk and weighted average life.

The Company has also entered into a derivative contract as a result of a commutation. The fair value of the derivative is determined using a discounted cash flow model. Key inputs include unobservable cash flows projected over the expected term of the derivative, discounted using observable discount rates and CDS spreads.

Warrants

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

Held For Sale

As of December 31, 2016, the Company estimated the fair value of the assets and liabilities of MBIA UK held for sale based on the fair value of the expected total consideration for the sale of MBIA UK. The fair value of the sale consideration is categorized in Level 2 of the fair value hierarchy. Refer to “Note 1: Business Developments and Risks and Uncertainties” for additional information about the sale of MBIA UK.

Financial Guarantees

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 which reflect the expected nonperformance risk and recovery rates of the Company.

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 the Company’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”, net of gross salvage payable to reinsurers as reported within “Other liabilities” on the Company’s consolidated balance sheets.

Significant Unobservable Inputs

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 June 30, 2017 and December 31, 2016.

		Fair Value
		as of				Range
		June 30,				(Weighted
In millions		2017		Valuation Techniques	Unobservable Input	Average)
Assets of consolidated VIEs:
	Loans receivable at fair value	$	1,690	Market prices adjusted for financial	Impact of financial guarantee	0% - 40% (6%)
				guarantees provided to VIE obligations
				Discounted cash flow	Multiples⁽¹⁾

	Loan repurchase commitments		407	Discounted cash flow	Recovery rates⁽²⁾
					Breach rates⁽²⁾

Liabilities of consolidated VIEs:
	Variable interest entity notes		491	Market prices of VIE assets adjusted for	Impact of financial guarantee	0% - 61% (30%)
				financial guarantees provided

Credit derivative liabilities, net:
	CMBS and multi-sector CDO		80	Direct Price Model	Nonperformance risk	46% - 46% (46%)

Other derivative liabilities			4	Discounted cash flow	Cash flows	$0 - $49 ($25)⁽³⁾

____________
(1) - Unobservable inputs are not developed by the Company.
(2) - Recovery rates and breach rates include estimates about potential variations in the outcome of litigation with a counterparty.
(3) - Midpoint of cash flows are used for the weighted average.

		Fair Value
		as of				Range
		December 31,				(Weighted
In millions		2016		Valuation Techniques	Unobservable Input	Average)
Assets of consolidated VIEs:
	Loans receivable at fair value	$	916	Market prices adjusted for financial	Impact of financial guarantee	0% - 28% (3%)
				guarantees provided to VIE obligations
				Discounted cash flow	Multiples⁽¹⁾

	Loan repurchase commitments		404	Discounted cash flow	Recovery rates⁽²⁾
					Breach rates⁽²⁾

Liabilities of consolidated VIEs:
	Variable interest entity notes		476	Market prices of VIE assets	Impact of financial guarantee	0% - 54% (24%)
				adjusted for financial guarantees provided

Credit derivative liabilities, net:
	CMBS		62	BET Model	Recovery rates	25% - 40% (33%)
					Nonperformance risk	10% - 32% (32%)
					Weighted average life (in years)	1.1 - 1.5 (1.3)
					CMBS spreads	25% - 35% (30%)
	Multi-sector CDO		2	Direct Price Model	Nonperformance risk	58% - 58% (58%)
Other derivative liabilities			20	Discounted cash flow	Cash flows	$0 - $83 ($42)⁽³⁾
	____________
	(1) - Unobservable inputs are not developed by the Company.
	(2) - Recovery rates and breach rates include estimates about potential variations in the outcome of litigation with a counterparty.
	(3) - Midpoint of cash flows are used for the weighted average.

Sensitivity of Significant Unobservable Inputs

The significant unobservable inputs used in the fair value measurement of the Company’s loans receivable at fair value of consolidated VIEs are the impact of the financial guarantee and multiples. The fair value of loans receivable are calculated by subtracting the value of the financial guarantee from the market value of VIE liabilities and by discounted cash flow methodologies. 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. Multiples are external factors that are considered when determining the fair values of certain loans. Any increase or decrease in multiples would result in an increase or decrease in the fair value, respectively.

The significant unobservable inputs used in the fair value measurement of the Company’s loan repurchase commitments of consolidated VIEs are the recovery rates and breach 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. Breach rates represent the rate at which mortgages fail to comply with stated representations and warranties of the sellers/servicers. Significant increases or decreases in the recovery rates and the breach 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. Any significant challenges by the counterparties to the Company’s determination of breaches of representations and warranties could have a material adverse impact on the fair value measurement. Recovery rates and breach rates are determined independently. Changes in one input will not necessarily have any impact on the other input.

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.

Effective in 2017, the Company used the Direct Price Model to value its commercial mortgage-backed securities (“CMBS”) and multi-sector CDO credit derivatives. The significant unobservable input used in the fair value measurement was 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. Prior to 2017, the Company used the BET Model to value its CMBS credit derivatives. The significant unobservable inputs used in the fair value measurement of its CMBS credit derivatives were 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 other derivatives, which are valued using a discounted cash flow model, is the estimates of future cash flows discounted using market rates and CDS spreads. Any significant increase or decrease in future cash flows would result in an increase or decrease in the fair value of the derivative liability, respectively.

Fair Value Measurements

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 June 30, 2017 and December 31, 2016:

				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		June 30,
In millions				(Level 1)		(Level 2)		(Level 3)			Netting		2017
Assets:
Fixed-maturity investments:
	U.S. Treasury and government agency			$	916	$	111	$	-		$	-	$	1,027
	State and municipal bonds				-		1,164		-			-		1,164
	Foreign governments				-		11		-			-		11
	Corporate obligations				88		1,326		-			-		1,414
	Mortgage-backed securities:
		Residential mortgage-backed agency			-		733		-			-		733
		Residential mortgage-backed non-agency			-		51		-			-		51
		Commercial mortgage-backed			-		25		7	⁽¹⁾		-		32
	Asset-backed securities:
		Collateralized debt obligations			-		49		-			-		49
		Other asset-backed			-		273		5	⁽¹⁾		-		278
			Total fixed-maturity investments		1,004		3,743		12			-		4,759
Money market securities					394		-		-			-		394
Perpetual debt and equity securities					29		9		-			-		38
Fixed-income fund					-		-		-			-		79	⁽²⁾
Cash and cash equivalents					143		-		-			-		143
Derivative assets:
	Non-insured derivative assets:
		Interest rate derivatives			-		3		-			-		3

				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		June 30,
In millions				(Level 1)		(Level 2)		(Level 3)			Netting		2017
Assets of consolidated VIEs:
	Corporate obligations				-		22		-			-		22
	Mortgage-backed securities:
		Residential mortgage-backed non-agency			-		145		-			-		145
		Commercial mortgage-backed			-		46		3	⁽¹⁾		-		49
	Asset-backed securities:
		Collateralized debt obligations			-		7		1	⁽¹⁾		-		8
		Other asset-backed			-		17		-			-		17
	Cash				21		-		-			-		21
	Loans receivable at fair value:
		Residential loans receivable			-		-		815			-		815
		Corporate loans receivable			-		-		875			-		875
	Loan repurchase commitments				-		-		407			-		407
	Derivative assets:
		Currency derivatives			-		-		9	⁽¹⁾		-		9
Total assets				$	1,591	$	3,992	$	2,122		$	-	$	7,784
Liabilities:
Medium-term notes				$	-	$	-	$	123	⁽¹⁾	$	-	$	123
Derivative liabilities:
	Insured derivatives:
		Credit derivatives			-		2		80			-		82
	Non-insured derivatives:
		Interest rate derivatives			-		207		-			-		207
		Other			-		-		4			-		4
Other liabilities:
	Warrants				-		17		-			-		17
Liabilities of consolidated VIEs:
	Variable interest entity notes				-		770		491			-		1,261
Total liabilities				$	-	$	996	$	698		$	-	$	1,694
____________
(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.
(2) - Investment that was measured at fair value by applying the net asset value per share practical expedient, and was required not to be classified in the fair value hierarchy.

				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		2016
Assets:
Fixed-maturity investments:
	U.S. Treasury and government agency			$	825	$	112	$	-		$	-	$	937
	State and municipal bonds				-		1,440		-			-		1,440
	Foreign governments				-		9		-			-		9
	Corporate obligations				-		1,332		2	⁽¹⁾		-		1,334
	Mortgage-backed securities:
		Residential mortgage-backed agency			-		868		-			-		868
		Residential mortgage-backed non-agency			-		45		-			-		45
		Commercial mortgage-backed			-		43		-			-		43
	Asset-backed securities:
		Collateralized debt obligations			-		7		15	⁽¹⁾		-		22
		Other asset-backed			-		257		44	⁽¹⁾		-		301
			Total fixed-maturity investments		825		4,113		61			-		4,999
Money market securities					521		-		-			-		521
Perpetual debt and equity securities					26		9		-			-		35
Fixed-income fund					-		-		-			-		75	⁽²⁾
Cash and cash equivalents					163		-		-			-		163
Derivative assets:
	Non-insured derivative assets:
		Interest rate derivatives			-		3		-			-		3

				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		2016
Assets of consolidated VIEs:
	Corporate obligations				-		27		-			-		27
	Mortgage-backed securities:
		Residential mortgage-backed non-agency			-		149		-			-		149
		Commercial mortgage-backed			-		52		-			-		52
	Asset-backed securities:
		Collateralized debt obligations			-		7		1	⁽¹⁾		-		8
		Other asset-backed			-		18		1	⁽¹⁾		-		19
	Cash				24		-		-			-		24
	Loans receivable at fair value:
		Residential loans receivable			-		-		916			-		916
		Corporate loans receivable			-		-		150	⁽¹⁾		-		150
	Loan repurchase commitments				-		-		404			-		404
	Derivative assets:
		Currency derivatives			-		-		19	⁽¹⁾		-		19
Total assets				$	1,559	$	4,378	$	1,552		$	-	$	7,564
Liabilities:
Medium-term notes				$	-	$	-	$	101	⁽¹⁾	$	-	$	101
Derivative liabilities:
	Insured derivatives:
		Credit derivatives			-		2		64			-		66
	Non-insured derivatives:
		Interest rate derivatives			-		213		-			-		213
		Other			-		-		20			-		20
Other liabilities:
	Warrants				-		33		-			-		33
Liabilities of consolidated VIEs:
	Variable interest entity notes				-		875		476			-		1,351
Total liabilities				$	-	$	1,123	$	661		$	-	$	1,784
____________
(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.
(2) - Investment that was measured at fair value by applying the net asset value per share practical expedient, and was required not to be classified in the fair value hierarchy.

Level 3 assets at fair value as of June 30, 2017 and December 31, 2016 represented approximately 27% and 21%, respectively, of total assets measured at fair value. Level 3 liabilities at fair value as of June 30, 2017 and December 31, 2016 represented approximately 41% and 37%, 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 June 30, 2017 and December 31, 2016:

		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		June 30,		June 30,
In millions		(Level 1)		(Level 2)		(Level 3)		2017		2017
Assets:
	Other investments	$	-	$	2	$	-	$	2	$	2
	Accrued investment income⁽¹⁾		-		37		-		37		37
	Receivable for investments sold⁽¹⁾		-		3		-		3		3
Assets of consolidated VIEs:
	Investments held-to-maturity		-		-		894		894		890
Total assets		$	-	$	42	$	894	$	936	$	932
Liabilities:
	Long-term debt	$	-	$	1,055	$	-	$	1,055	$	2,061
	Medium-term notes		-		-		490		490		753
	Investment agreements		-		-		471		471		365
	Payable for investments purchased⁽²⁾		-		20		-		20		20
	Interest payable for derivatives⁽²⁾		-		18		-		18		18
Liabilities of consolidated VIEs:
	Variable interest entity notes		-		329		894		1,223		1,205
Total liabilities		$	-	$	1,422	$	1,855	$	3,277	$	4,422
Financial Guarantees:
	Gross	$	-	$	-	$	2,376	$	2,376	$	1,092
	Ceded		-		-		50		50		31
__________
(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)		2016		2016
Assets:
	Other investments	$	-	$	2	$	-	$	2	$	3
	Accrued investment income⁽¹⁾		-		40		-		40		40
	Assets held for sale		-		306		-		306		306
Assets of consolidated VIEs:
	Investments held-to-maturity		-		-		876		876		890
Total assets		$	-	$	348	$	876	$	1,224	$	1,239
Liabilities:
	Long-term debt	$	-	$	1,030	$	-	$	1,030	$	1,986
	Medium-term notes		-		-		478		478		794
	Investment agreements		-		-		508		508		399
	Payable for investments purchased⁽²⁾		-		32		-		32		32
Liabilities of consolidated VIEs:
	Variable interest entity notes		-		-		882		882		890
Total liabilities		$	-	$	1,062	$	1,868	$	2,930	$	4,101
Financial Guarantees:
	Gross	$	-	$	-	$	2,638	$	2,638	$	995
	Ceded		-		-		18		18		43
__________
(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 June 30, 2017 and 2016:

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended June 30, 2017
																									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		June 30,
In millions	of Period		(Losses)		Earnings		in OCI		Earnings		Purchases		Issuances		Settlements		Sales		Level 3⁽¹⁾		Level 3⁽¹⁾		Balance		2017
Assets:
Commercial
mortgage-backed		-		-		-		-		-		-		-		-		-		7		-		7		-
Collateralized debt
obligations		13		-		-		-		-		-		-		(5)		-		-		(8)		-		-
Other asset-backed		5		-		-		-		-		-		-		-		-		-		-		5		-
State and municipal
bonds		1		-		-		-		-		-		-		-		-		-		(1)		-		-
Assets of
consolidated VIEs:
Corporate obligations		6		-		-		-		-		-		-		(2)		-		-		(4)		-		-
Commercial
mortgage-backed		-		-		-		-		-		-		-		-		-		3		-		3		-
Collateralized debt
obligations		1		-		-		-		-		-		-		-		-		-		-		1		-
Other asset-backed		1		-		-		-		-		-		-		-		-		-		(1)		-		-
Loans receivable-
residential		844		-		31		-		-		-		-		(60)		-		-		-		815		31
Loans receivable-
corporate		872		-		29		-		-		-		-		(26)		-		-		-		875		29
Loan repurchase
commitments		409		-		(2)		-		-		-		-		-		-		-		-		407		(2)
Currency
derivatives, net		13		-		(2)		-		(2)		-		-		-		-		-		-		9		(4)
Total assets	$	2,165	$	-	$	56	$	-	$	(2)	$	-	$	-	$	(93)	$	-	$	10	$	(14)	$	2,122	$	54

																									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		June 30,
In millions	of Period		Losses		Earnings		in OCI		Earnings		Purchases		Issuances		Settlements		Sales		Level 3⁽¹⁾		Level 3⁽¹⁾		Balance		2017
Liabilities:
Medium-term notes	$	104	$	-	$	12	$	-	$	7	$	-	$	-	$	-	$	-	$	-	$	-	$	123	$	19
Credit derivatives, net		86		3		(6)		-		-		-		-		(3)		-		-		-		80		(6)
Other derivatives		20		-		18		-		-		-		-		(34)		-		-		-		4		18
Liabilities of
consolidated VIEs:
VIE notes		491		-		18		-		-		-		-		(18)		-		-		-		491		18
Total liabilities	$	701	$	3	$	42	$	-	$	7	$	-	$	-	$	(55)	$	-	$	-	$	-	$	698	$	49
_______________
(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 June 30, 2016
																									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		June 30,
In millions	of Period		(Losses)		Earnings		in OCI		Earnings		Purchases		Issuances		Settlements		Sales		Level 3⁽¹⁾		Level 3⁽¹⁾		Balance		2016
Assets:
Foreign governments	$	2	$	-	$	-	$	-	$	-	$	5	$	-	$	-	$	-	$	-	$	-	$	7	$	-
Corporate obligations		1		-		-		-		-		1		-		-		-		-		-		2		-
Collateralized debt
obligations		26		-		-		17		-		-		-		(23)		-		-		-		20		-
Other asset-backed		39		-		-		2		-		-		-		-		-		-		-		41		-
State and municipal
bonds		3		-		-		-		-		121		-		-		-		-		-		124		-
Assets of
consolidated VIEs:
Corporate obligations		1		-		-		-		-		-		-		-		-		2		-		3		-
Residential mortgage-
backed non-agency		-		-		-		-		-		-		-		-		-		1		-		1		-
Commercial
mortgage-backed		2		-		-		-		-		-		-		-		-		-		-		2		-
Collateralized debt
obligations		1		-		-		-		-		-		-		-		-		-		-		1		-
Other asset-backed		3		-		-		-		-		-		-		-		-		1		-		4		-
Loans receivable-
residential		1,115		-		(16)		-		-		-		-		(54)		-		-		-		1,045		(16)
Loans receivable-
corporate		253		-		1		-		-		-		-		-		(107)		-		-		147		1
Loan repurchase commitments		399		-		2		-		-		-		-		-		-		-		-		401		2
Currency derivatives, net		5		-		4		-		-		-		-		-		-		-		-		9		4
Total assets	$	1,850	$	-	$	(9)	$	19	$	-	$	127	$	-	$	(77)	$	(107)	$	4	$	-	$	1,807	$	(9)

																									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		June 30,
In millions	of Period		Losses		Earnings		in OCI		Earnings		Purchases		Issuances		Settlements		Sales		Level 3⁽¹⁾		Level 3⁽¹⁾		Balance		2016
Liabilities:
Medium-term notes	$	165	$	-	$	-	$	-	$	(4)	$	-	$	-	$	-	$	-	$	-	$	-	$	161	$	(4)
Credit derivatives, net		99		2		5		-		-		-		-		(2)		-		-		-		104		5
Other
derivatives, net		19		-		2		-		-		-		-		-		-		-		-		21		2
Liabilities of
consolidated VIEs:
VIE notes		1,176		-		(22)		-		-		-		-		-		(631)		-		-		523		(22)
Total liabilities	$	1,459	$	2	$	(15)	$	-	$	(4)	$	-	$	-	$	(2)	$	(631)	$	-	$	-	$	809	$	(19)
_______________
(1) - Transferred in and out at the end of the period.

For the three months ended June 30, 2017, transfers into Level 3 and out of Level 2 were related to CMBS, where inputs, which are significant to their valuation, became unobservable during the quarter. These inputs included spreads, prepayment speeds, default speeds, default severities, yield curves observable at commonly quoted intervals, and market corroborated inputs. CDOs and corporate obligations comprised the instruments transferred out of Level 3 where inputs, which are significant to their valuation, became observable during the quarter. There were no transfers into or out of Level 1 for the three months ended June 30, 2017.

For the three months ended June 30, 2016, transfers into Level 3 were principally related to corporate obligations, other asset-backed and RMBS non-agency, where inputs, which are significant to their valuation, became unobservable 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 for the three months ended June 30, 2016.

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 Six Months Ended June 30, 2017
																									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		June 30,
In millions	of Year		(Losses)		Earnings		in OCI		Earnings		Purchases		Issuances		Settlements		Sales		Level 3⁽¹⁾		Level 3⁽¹⁾		Balance		2017
Assets:
Corporate obligations		2		-		-		-		-		-		-		(1)		-		-		(1)		-		-
Commercial
mortgage-backed		-		-		-		-		-		-		-		-		-		7		-		7		-
Collateralized debt
obligations		15		-		-		-		-		-		-		(7)		-		-		(8)		-		-
Other asset-backed		44		-		-		2		-		-		-		(41)		-		-		-		5		-
State and municipal
bonds		-		-		-		-		-		-		-		-		-		1		(1)		-		-
Assets of
consolidated VIEs:
Corporate obligations		-		-		-		-		-		-		-		(2)		-		6		(4)		-		-
Commercial
mortgage-backed		-		-		-		-		-		-		-		-		-		3		-		3		-
Collateralized debt
obligations		1		-		-		-		-		-		-		-		-		-		-		1		-
Other asset-backed		1		-		-		-		-		-		-		-		-		1		(2)		-		-
Loans receivable-
residential		916		-		27		-		-		-		-		(128)		-		-		-		815		27
Loans receivable-
corporate		150		-		32		-		-		719		-		(26)		-		-		-		875		32
Loan repurchase
commitments		404		-		3		-		-		-		-		-		-		-		-		407		3
Currency
derivatives, net		19		-		(5)		-		(5)		-		-		-		-		-		-		9		(10)
Total assets	$	1,552	$	-	$	57	$	2	$	(5)	$	719	$	-	$	(205)	$	-	$	18	$	(16)	$	2,122	$	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		June 30,
In millions	of Year		Losses		Earnings		in OCI		Earnings		Purchases		Issuances		Settlements		Sales		Level 3⁽¹⁾		Level 3⁽¹⁾		Balance		2017
Liabilities:
Medium-term notes	$	101	$	-	$	13	$	-	$	9	$	-	$	-	$	-	$	-	$	-	$	-	$	123	$	22
Credit derivatives, net		64		34		16		-		-		-		-		(34)		-		-		-		80		16
Other derivatives, net		20		-		18		-		-		-		-		(34)		-		-		-		4		18
Liabilities of
consolidated VIEs:
VIE notes		476		-		52		-		-		-		-		(37)		-		-		-		491		52
Total liabilities	$	661	$	34	$	99	$	-	$	9	$	-	$	-	$	(105)	$	-	$	-	$	-	$	698	$	108
_______________
(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 Six Months Ended June 30, 2016
																									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		June 30,
In millions	of Year		(Losses)		Earnings		in OCI		Earnings		Purchases		Issuances		Settlements		Sales		Level 3⁽¹⁾		Level 3⁽¹⁾		Balance		2016
Assets:
Foreign governments	$	2	$	-	$	-	$	-	$	-	$	5	$	-	$	-	$	-	$	-	$	-	$	7	$	-
Corporate obligations		7		-		-		-		-		-		-		-		-		-		(5)		2		-
Collateralized debt
obligations		29		-		-		18		-		-		-		(27)		-		-		-		20		-
Other asset-backed		38		(1)		(1)		7		-		-		-		(2)		-		-		-		41		(1)
State and municipal
bonds		41		-		-		-		-		121		-		(38)		-		-		-		124		-
Assets of
consolidated VIEs:
Corporate obligations		11		-		(5)		-		-		-		-		-		-		2		(5)		3		-
Residential mortgage-
backed non-agency		-		-		-		-		-		-		-		-		-		1		-		1		-
Commercial
mortgage-backed		-		-		-		-		-		-		-		-		-		2		-		2		-
Collateralized debt
obligations		1		-		-		-		-		-		-		-		-		-		-		1		-
Other asset-backed		6		-		(6)		-		-		-		-		-		-		4		-		4		-
Loans receivable-
residential		1,185		-		(30)		-		-		-		-		(110)		-		-		-		1,045		(30)
Loans receivable-
corporate		107		-		1		-		-		146		-		-		(107)		-		-		147		1
Loan repurchase
commitments		396		-		5		-		-		-		-		-		-		-		-		401		5
Currency derivatives, net		11		-		(2)		-		-		-		-		-		-		-		-		9		(2)
Total assets	$	1,834	$	(1)	$	(38)	$	25	$	-	$	272	$	-	$	(177)	$	(107)	$	9	$	(10)	$	1,807	$	(27)

																									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		June 30,
In millions	of Year		Losses		Earnings		in OCI		Earnings		Purchases		Issuances		Settlements		Sales		Level 3⁽¹⁾		Level 3⁽¹⁾		Balance		2016
Liabilities:
Medium-term notes	$	161	$	-	$	(4)	$	-	$	4	$	-	$	-	$	-	$	-	$	-	$	-	$	161	$	-
Credit derivatives, net		85		16		19		-		-		-		-		(16)		-		-		-		104		22
Other derivatives, net		18		-		3		-		-		-		-		-		-		-		-		21		3
Liabilities of
consolidated VIEs:
VIE notes		1,267		-		(44)		-		-		9		-		(78)		(631)		-		-		523		(45)
Total liabilities	$	1,531	$	16	$	(26)	$	-	$	4	$	9	$	-	$	(94)	$	(631)	$	-	$	-	$	809	$	(20)
_______________
(1) - Transferred in and out at the end of the period.

For the six months ended June 30, 2017, transfers into Level 3 and out of Level 2 were principally related to CMBS and corporate obligations, where inputs, which are significant to their valuation, became unobservable during the period. CDOs, corporate obligations and other asset-backed securities comprised the majority of the instruments transferred 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.

For the six months ended June 30, 2016, transfers into Level 3 were principally related to other asset-backed, corporate obligations and CMBS, where inputs, which are significant to their valuation, became unobservable during the period. Corporate obligations comprised the majority of the instruments transferred 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 June 30, 2017 and 2016 are reported on the Company’s consolidated statements of operations as follows:


		Three Months Ended June 30, 2017				Three Months Ended June 30, 2016
				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		June 30,		Included		June 30,
In millions		in Earnings		2017		in Earnings		2016
Revenues:
	Unrealized gains (losses) on
	insured derivatives	$	6	$	6	$	(5)	$	(5)
	Realized gains (losses) and other
	settlements on insured derivatives		(3)		-		(2)		-
	Net gains (losses) on financial instruments
	at fair value and foreign exchange		(37)		(37)		2		2
	Revenues of consolidated VIEs:
	Net gains (losses) on financial instruments
	at fair value and foreign exchange		36		36		13		13
Total		$	2	$	5	$	8	$	10

Gains and losses (realized and unrealized) included in earnings relating to Level 3 assets and liabilities for the six months ended June 30, 2017 and 2016 are reported on the Company’s consolidated statements of operations as follows:


		Six Months Ended June 30, 2017				Six Months Ended June 30, 2016
				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		June 30,		Included		June 30,
In millions		in Earnings		2017		in Earnings		2016
Revenues:
	Unrealized gains (losses) on
	insured derivatives	$	(16)	$	(16)	$	(19)	$	(22)
	Realized gains (losses) and other
	settlements on insured derivatives		(34)		-		(16)		-
	Net gains (losses) on financial instruments
	at fair value and foreign exchange		(40)		(40)		(4)		(4)
	Net investment losses related to
	other-than-temporary impairments		-		-		(1)		-
	Revenues of consolidated VIEs:
	Net gains (losses) on financial instruments
	at fair value and foreign exchange		-		-		7		19
Total		$	(90)	$	(56)	$	(33)	$	(7)

Fair Value Option

The Company elected to record at fair value certain financial instruments 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 six months ended June 30, 2017 and 2016 for financial instruments for which the fair value option was elected:

		Three Months Ended June 30,				Six Months Ended June 30,
In millions		2017		2016		2017		2016
Investments carried at fair value⁽¹⁾		$	3	$	3	$	6	$	6
Fixed-maturity securities held at fair value-VIE⁽²⁾			(5)		(13)		(14)		(97)
Loans receivable at fair value:
	Residential mortgage loans⁽²⁾		(30)		(70)		(102)		(140)
	Corporate loans⁽²⁾		4		-		7		-
Loan repurchase commitments⁽²⁾			(2)		2		4		5
Medium-term notes⁽¹⁾			(19)		4		(22)		-
Variable interest entity notes ⁽²⁾			(45)		71		(90)		238
___________
(1) - Reported within "Net gains (losses) on financial instruments at fair value and foreign exchange" on MBIA's consolidated statements of operations.
(2) - Reported within "Net gains (losses) on financial instruments at fair value and foreign exchange-VIE" on MBIA's consolidated statements of operations.

The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principal balance outstanding as of June 30, 2017 and December 31, 2016 for loans and notes for which the fair value option was elected:

		As of June 30, 2017							As of December 31, 2016
		Contractual						Contractual
		Outstanding		Fair				Outstanding		Fair
In millions		Principal		Value		Difference		Principal		Value		Difference
Loans receivable at fair value:
	Residential mortgage loans	$	828	$	779	$	49	$	965	$	894	$	71
	Residential mortgage loans (90 days or more past due)		162		36		126		143		22		121
	Corporate loans (90 days or more past due)		875		875		-		150		150		-
Total loans receivable at fair value			1,865		1,690		175		1,258		1,066		192

Variable interest entity notes			3,065		1,261		1,804		2,449		1,351		1,098

Medium-term notes			171		123		48		158		101		57

Substantially all gains and losses included in earnings during the six months ended June 30, 2017 and 2016 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.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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