Fair Value Of Financial Instruments

12 Months Ended

Dec. 31, 2021

Note 7: Fair Value of Financial Instruments

Fair Value Measurement

Financial Assets and Liabilities

Financial assets held by the Company primarily consist of investments in debt securities, loans receivables at fair value and loan repurchase commitments held by consolidated VIEs. The Company’s remaining loan repurchase commitments were settled in the first quarter of 2021. Financial liabilities, excluding derivative liabilities, issued by the Company primarily consist of debt issued for general corporate purposes within its corporate segment, MTNs, investment agreements and debt issued by consolidated VIEs. The Company’s derivative liabilities are primarily interest rate swaps and insured credit derivatives.

Valuation Techniques

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

Fixed-Maturity Securities Held as

Available-For-Sale,

Investments Carried at Fair Value, Investments Pledged as Collateral and Short-term Investments

These investments include investments in U.S. Treasury and government agencies, state and municipal bonds, foreign governments, corporate obligations, MBS, ABS, money market securities, and perpetual debt and equity securities.

Substantially all of these investments are valued based on recently executed transaction prices or quoted market prices by independent third parties, including pricing services and brokers. 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.

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, 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

The carrying amounts of cash and cash equivalents approximate fair value due to the short-term nature and credit worthiness of these instruments and are categorized in Level 1 of the fair value hierarchy.

Loans Receivable at Fair Value

Loans receivable at fair value are assets held by consolidated VIEs consisting of residential mortgage loans and are categorized in Level 3 of the fair value hierarchy. Fair values of residential mortgage loans are determined using quoted prices for similar securities or MBS issued by the respective VIE and adjusted for the fair values of the financial guarantees provided by MBIA Corp. on the related MBS. The fair values of the financial guarantees consider expected claim payments, net of recoveries, under MBIA Corp.’s policies.

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 were assets of certain consolidated VIEs. These assets represented 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 represented the amounts owed by the sellers/servicers to MBIA as reimbursement of paid claims and contractual interest. Loan repurchase commitments were not securities and no quoted prices or comparable market transaction information were observable or available. Fair values of loan repurchase commitments were determined using discounted cash flow techniques and were categorized in Level 3 of the fair value hierarchy. The Company’s loan repurchase commitments were settled in the first quarter of 2021.

Other Assets

A VIE consolidated by the Company entered into a derivative instrument consisting of a cross currency swap. The cross currency swap was entered into to manage the variability in cash flows resulting from fluctuations in foreign currency rates. The fair value of the VIE derivative is determined based on inputs from unobservable cash flows projection of the derivative, discounted using observable discount rates. As the significant inputs are unobservable, the derivative contract is categorized in Level 3 of the fair value hierarchy.

Other assets also include receivables representing the right to receive reimbursement payments on claim payments expected to be made on certain insured VIE liabilities due to risk mitigating transactions with third parties executed to effectively defease, or,

in-substance

commute the Company’s exposure on its financial guarantee policies. The right to receive reimbursement payments is based on the value of the Company’s financial guarantee determined using a cash flow model. The fair value of the financial guarantee primarily contains unobservable inputs and is categorized in Level 3 of the fair value hierarchy.

Medium-term Notes at Fair Value

The Company has elected to measure certain MTNs at fair value on a recurring basis. 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. MTNs are categorized in Level 3 of the fair value hierarchy and do not include accrued interest.

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. 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 certain insured credit derivatives using valuation models based on observable inputs and considering nonperformance risk of the Company. These insured credit derivatives are categorized in Level 2 of the fair value hierarchy.

Derivatives—Other

The Company also had other derivative liabilities as a result of a commutation that occurred in 2014. The fair value of these derivative liabilities were determined using a discounted cash flow model. Key inputs included unobservable cash flows projected over the expected term of the derivative. As the significant inputs were unobservable, the derivative contract was categorized in Level 3 of the fair value hierarchy. These derivative liabilities were settled in the first quarter of 2021.

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 December 31, 2021 and 2020:


In millions	Fair Value as of December 31, 2021		Valuation Techniques	Unobservable Input	Range (Weighted Average)
Assets of consolidated VIEs:
Loans receivable at fair value	$	77	Market prices of similar liabilities adjusted for financial guarantees provided to VIE obligations	Impact of financial guarantee	23%—72%(55%) (1)
Liabilities of consolidated VIEs:
Variable interest entity notes		291	Market prices of VIE assets adjusted for financial guarantees provided or market prices of similar liabilities	Impact of financial guarantee	33%—73%(59%) (1)

(1)—Weighted average represents the total MBIA guarantees as a percentage of total instrument fair value.


In millions	Fair Value as of December 31, 2020		Valuation Techniques	Unobservable Input	Range (Weighted Average)
Assets of consolidated VIEs:
Loans receivable at fair value	$	120	Market prices adjusted for financial guarantees provided to VIE obligations	Impact of financial guarantee (2)	-28%—109% (22%) (1)
Loan repurchase commitments		604	Discounted cash flow	Recovery value (3)
Liabilities of consolidated VIEs:
Variable interest entity notes		303	Market prices of VIE assets adjusted for financial guarantees provided	Impact of financial guarantee	30%—73% (57%) (1)
Other derivative liabilities		49	Discounted cash flow	Cash flows	$49—$49 ($49)

(1)—Weighted average represents the total MBIA guarantees as a percentage of total instrument fair value.

(2)—Negative percentage represents financial guarantee policies in a receivable position.

(3)—Recovery value reflects an estimate of the amount to be awarded to the Company as part of litigation seeking to enforce its contractual rights.

Sensitivity of Significant Unobservable Inputs

The significant unobservable input used in the fair value measurement of the Company’s residential loans receivable at fair value of consolidated VIEs is the impact of the financial guarantee. The fair value of residential loans receivable is calculated by subtracting the value of the financial guarantee from the quoted price of VIE liabilities or the market value of similar instruments to that of the VIE liabilities. The value of a financial guarantee is estimated by the Company as the present value of expected cash payments, net of recoveries, under the policy. If there had been a lower expected cash flow on the underlying loans receivable of the VIE, the value of the financial guarantee provided by the Company under the insurance policy would have been higher. This would have resulted in a lower fair value of the residential loans receivable in relation to the obligations of the VIE.

As of December 31, 2020, the significant unobservable input used in the fair value measurement of the Company’s loan repurchase commitments of consolidated VIEs was a recovery value, which reflected an estimate of the amount to be awarded to the Company as part of litigation seeking to enforce its contractual rights. The Company’s remaining loan repurchase commitments were settled in the first quarter of 2021 for $600 million.

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. When the VIE note is backed by RMBS, the fair value of the VIE liability is calculated by applying the market value of similar instruments to that of the VIE liabilities. The value of a financial guarantee is estimated by the Company as the present value of expected cash payments under the policy. If the value of the guarantee provided by the Company to the obligations issued by the VIE had increased, the credit support would have added value to the liabilities of the VIE. This would have resulted in an increased fair value of the liabilities of the VIE.

As of December 31, 2020, the significant unobservable input used in the fair value measurement of MBIA Corp.’s other derivatives, which were valued using a discounted cash flow model, was the estimates of future cash flows discounted using market rates and CDS spreads. This derivative contract was settled in the first quarter of 2021 for an amount consistent with the reported amount as of December 31, 2020.

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 December 31, 2021 and 2020:


	Fair Value Measurements at Reporting Date Using
In millions	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of December 31, 2021
Assets:
Fixed-maturity investments:
U.S. Treasury and government agency	$	750	$	95	$	—	$	845
State and municipal bonds		—		168		—		168
Foreign governments		—		17		—		17
Corporate obligations		—		1,050		—		1,050
Mortgage-backed securities:
Residential mortgage-backed agency		—		198		—		198
Residential mortgage-backed non-agency		—		98		—		98
Commercial mortgage-backed		—		13		—		13
Asset-backed securities:
Collateralized debt obligations		—		150		—		150
Other asset-backed		—		106		—		106

Total fixed-maturity investments		750		1,895		—		2,645
Money market securities		78		—		—		78
Perpetual debt and equity securities		47		23		—		70
Cash and cash equivalents		151		—		—		151
Derivative assets:
Non-insured interest rate derivatives		—		1		—		1
Assets of consolidated VIEs:
Corporate obligations		—		5		—		5
Mortgage-backed securities:
Residential mortgage-backed non-agency		—		27		—		27
Commercial mortgage-backed		—		10		—		10
Asset-backed securities:
Collateralized debt obligations		—		6		4		10
Other asset-backed		—		8		—		8
Cash		9		—		—		9
Loans receivable at fair value:
Residential loans receivable		—		—		77		77
Other assets:
Currency derivatives		—		—		9		9
Other		—		—		14		14

Total assets	$	1,035	$	1,975	$	104	$	3,114

Liabilities:
Medium-term notes	$	—	$	—	$	98	$	98
Derivative liabilities:
Insured credit derivatives		—		1		—		1
Non-insured interest rate derivatives		—		130		—		130
Liabilities of consolidated VIEs:
Variable interest entity notes		—		—		291		291

Total liabilities	$	—	$	131	$	389	$	520


	Fair Value Measurements at Reporting Date Using
In millions	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of December 31, 2020
Assets:
Fixed-maturity investments:
U.S. Treasury and government agency	$	750	$	105	$	—	$	855
State and municipal bonds		—		195		—		195
Foreign governments		—		15		—		15
Corporate obligations		—		975		—		975
Mortgage-backed securities:
Residential mortgage-backed agency		—		319		—		319
Residential mortgage-backed non-agency		—		32		—		32
Commercial mortgage-backed		—		20		—		20
Asset-backed securities:
Collateralized debt obligations		—		121		—		121
Other asset-backed		—		141		—		141

Total fixed-maturity investments		750		1,923		—		2,673
Money market securities		1		—		—		1
Perpetual debt and equity securities		37		25		—		62
Cash and cash equivalents		158		—		—		158
Derivative assets:
Non-insured interest rate derivatives		—		1		—		1
Assets of consolidated VIEs:
Corporate obligations		—		6		—		6
Mortgage-backed securities:

Residential mortgage-backed non-agency		—		40		—		40
Commercial mortgage-backed		—		16		—		16
Asset-backed securities:
Collateralized debt obligations		—		8		—		8
Other asset-backed		—		7		—		7
Cash		9		—		—		9
Loans receivable at fair value:
Residential loans receivable		—		—		120		120
Loan repurchase commitments		—		—		604		604
Other assets:
Currency derivatives		—		—		6		6
Other		—		—		14		14

Total assets	$	955	$	2,026	$	744	$	3,725

Liabilities:
Medium-term notes	$	—	$	—	$	110	$	110
Derivative liabilities:
Insured credit derivatives		—		2		—		2
Non-insured interest rate derivatives		—		164		—		164
Other non-insured		—		—		49		49
Liabilities of consolidated VIEs:
Variable interest entity notes		—		47		303		350

Total liabilities	$	—	$	213	$	462	$	675

Level 3 assets

at fair value as of December 31, 2021 and 2020 represented approximatel

% an

%, respectively, of total assets measured at fair value. Level 3 liabilities at fair value as of December 31, 2021 and 2020 represented approximately

% and

%, 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 December 31, 2021 and 2020. The majority of the financial assets and liabilities that the Company requires fair value reporting or disclosures are valued based on the Company’s or a third-party’s estimate of discounted cash flow model estimates, or quoted market values for the identical or similar products.


	Fair Value Measurements at Reporting Date Using
In millions	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value Balance as of December 31, 2021		Carry Value Balance as of December 31, 2021
Liabilities:
Long-term debt	$	—	$	433	$	—	$	433	$	2,331
Medium-term notes		—		—		322		322		490
Investment agreements		—		—		355		355		274

Total liabilities	$	—	$	433	$	677	$	1,110	$	3,095

Financial Guarantees:
Gross liability (recoverable)	$	—	$	—	$	848	$	848	$	(80)
Ceded recoverable (liability)		—		—		30		30		(42)


	Fair Value Measurements at Reporting Date Using
In millions	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value Balance as of December 31, 2020		Carry Value Balance as of December 31, 2020
Liabilities:
Long-term debt	$	—	$	631	$	—	$	631	$	2,229
Medium-term notes		—		—		396		396		598
Investment agreements		—		—		376		376		269
Liabilities of consolidated VIEs:
Variable interest entity notes		—		276		—		276		273

Total liabilities	$	—	$	907	$	772	$	1,679	$	3,369

Financial Guarantees:
Gross liability (recoverable)	$	—	$	—	$	811	$	811	$	(282)
Ceded recoverable (liability)		—		—		45		45		(17)

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 years ended December 31, 2021 and 2020:

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Year Ended December 31, 2021


In millions	Balance, Beginning of Year		Total Gains / (Losses) Included in Earnings		Unrealized Gains / (Losses) Included in OCI (1)		Purchases		Issuances		Settlements		Sales		Transfers into Level 3		Transfers out of Level 3		Ending Balance		Change in Unrealized Gains (Losses) for the Period Included in Earnings for Assets still held as of December 31, 2021		Change in Unrealized Gains (Losses) for the Period Included in OCI for Assets still held as of December 31, 2021 (1)
Assets:
Assets of consolidated VIEs:
Commercial mortgage-backed	$	—	$	—	$	—	$	—	$	—	$	(4)	$	—	$	4	$	—	$	—	$	—	$	—
Collateralized debt obligations		—		—		—		—		—		—		—		4		—		4		—		—
Loans receivable-residential		120		32		—		—		—		(15)		(60)		—		—		77		21		—
Loan repurchase commitments		604		(4)		—		—		—		(600)		—		—		—		—		—		—
Currency derivatives		6		3		—		—		—		—		—		—		—		9		3		—
Other		14		—		—		—		—		—		—		—		—		14		—		—

Total assets	$	744	$	31	$	—	$	—	$	—	$	(619)	$	(60)	$	8	$	—	$	104	$	24	$	—


In millions	Balance, Beginning of Year		Total (Gains) / Losses Included in Earnings		Unrealized (Gains) / Losses Included in Credit Risk in OCI (2)		Purchases		Issuances		Settlements		Sales		Transfers into Level 3		Transfers out of Level 3		Ending Balance		Change in Unrealized (Gains) Losses for the Period Included in Earnings for Liabilities still held as of December 31, 2021		Change in Unrealized (Gains) Losses for the Period Included in OCI for Liabilities still held as of December 31, 2021 (2)
Liabilities:
Medium-term notes	$	110	$	(17)	$	10	$	—	$	—	$	(5)	$	—	$	—	$	—	$	98	$	(17)	$	10
Other derivatives		49		—		—		—		—		(49)		—		—		—		—		—		—
Liabilities of consolidated VIEs:
VIE notes		303		46		(15)		—		—		(38)		(5)		—		—		291		24		5

Total liabilities	$	462	$	29	$	(5)	$	—	$	—	$	(92)	$	(5)	$	—	$	—	$	389	$	7	$	15

(1)—Reported

within the “Unrealized gains (losses) on available-for-sale securities” on MBIA’s Consolidated Statement of Comprehensive Income/Loss.

(2)—Reported

within the “Instrument-specific credit risk of liabilities measured at fair value” on MBIA’s Consolidated Statement of Comprehensive Income/Loss.

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Year Ended December 31, 2020


In millions	Balance, Beginning of Year		Total Gains / (Losses) Included in Earnings		Unrealized Gains / (Losses) Included in OCI (1)		Purchases		Issuances		Settlements		Sales		Transfers into Level 3		Transfers out of Level 3		Ending Balance		Change in Unrealized Gains (Losses) for the Period Included in Earnings for Assets still held as of December 31, 2020		Change in Unrealized Gains (Losses) for the Period Included in Earnings for Assets still held as of December 31, 2020 (1)
Assets:
Other asset-backed	$	1	$	—	$	—	$	—	$	—	$	(1)	$	—	$	—	$	—	$	—	$	—	$	—
Assets of consolidated VIEs:
Loans receivable-residential		136		—		—		—		—		(16)		—		—		—		120		(4)		—
Loan repurchase commitments		486		118		—		—		—		—		—		—		—		604		118		—
Currency derivatives		8		(2)		—		—		—		—		—		—		—		6		(2)		—
Other		18		(4)		—		—		—		—		—		—		—		14		(4)		—

Total assets	$	649	$	112	$	—	$	—	$	—	$	(17)	$	—	$	—	$	—	$	744	$	108	$	—


In millions	Balance, Beginning of Year		Total (Gains) / Losses Included in Earnings		Unrealized (Gains) / Losses Included in OCI (2)		Purchases		Issuances		Settlements		Sales		Transfers into Level 3		Transfers out of Level 3		Ending Balance		Change in Unrealized (Gains) Losses for the Period Included in Earnings for Liabilities still held as of December 31, 2020		Change in Unrealized (Gains) Losses for the Period Included in OCI for Liabilities still held as of December 31, 2020 (2)
Liabilities:

Medium-term notes	$	108	$	15	$	(13)	$	—	$	—	$	—	$	—	$	—	$	—	$	110	$	15	$	(13)
Credit derivatives		7		(6)		—		—		—		(1)		—		—		—		—		—		—
Other derivatives		34		15		—		—		—		—		—		—		—		49		15		—
Other payable		4		—		—		—		—		(4)		—		—		—		—		—		—
Liabilities of consolidated VIEs:
VIE notes		347		11		(40)		—		—		(15)		—		—		—		303		5		(38)

Total liabilities	$	500	$	35	$	(53)	$	—	$	—	$	(20)	$	—	$	—	$	—	$	462	$	35	$	(51)

(1)—Reported

within the “Unrealized gains (losses) on available-for-sale securities” on MBIA’s Consolidated Statement of Comprehensive Income/Loss.

(2)—Reported

within the “Instrument-specific credit risk of liabilities measured at fair value” on MBIA’s Consolidated Statement of Comprehensive Income/Loss.

For the year ended December 31, 2021, sales include the impact of the deconsolidation of VIEs. Refer to “Note 4: Variable Interest Entities” for additional information about the deconsolidation of VIEs.

For the year ended December 31, 2021, transfers into Level 3 and out of Level 2 were principally related to CMBS and CDOs, 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 out of Level 3.

For the year ended December 31, 2020, there were no transfers into or out of Level 3.

Gains and losses (realized and unrealized) included in earnings relating to Level 3 assets and liabilities for the years ended December 31, 2021, 2020 and 2019 are reported on the Company’s consolidated statements of operations as follows:


In millions	Total Gains (Losses) Included in Earnings						Change in Unrealized Gains (Losses) for the Period Included in Earnings for Assets and Liabilities still held as of December 31,
	2021		2020		2019		2021		2020		2019
Revenues:
Unrealized gains (losses) on insured derivatives	$	—	$	7	$	25	$	—	$	—	$	25
Realized gains (losses) and other settlements on insured derivatives		—		(1)		(10)		—		—		—
Net gains (losses) on financial instruments at fair value and foreign exchange		17		(30)		(26)		17		(30)		(27)
Net investment losses related to other-than-temporary impairments		—		—		(1)		—		—		—
Other net realized gains (losses)		—		—		(2)		—		—		(2)
Revenues of consolidated VIEs:
Net gains (losses) on financial instruments at fair value and foreign exchange		(15)		101		53		—		103		68

Total	$	2	$	77	$	39	$	17	$	73	$	64

Fair Value Option

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

The following table presents the gains and (losses) included in the Company’s consolidated statements of operations for the years ended December 31, 2021, 2020 and 2019 for financial instruments for which the fair value option was elected:


	Years Ended December 31,
In millions	2021		2020		2019
Investments carried at fair value (1)	$	3	$	2	$	15
Fixed-maturity securities held at fair value-VIE (2)		4		4		95
Loans receivable and other instruments at fair value:
Residential mortgage loans (2)		32		—		35
Loan repurchase commitments (2)		(4)		118		68
Other assets-VIE (2)		—		(4)		4
Medium-term notes (1)		17		(15)		1
Other liabilities (3)		—		—		(2)
Variable interest entity notes (2)		(50)		(12)		(89)

(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.

(3)—Reported within “Other net realized gains (losses)” 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 December 31, 2021 and 2020 for loans and notes for which the fair value option was elected:


	As of December 31, 2021						As of December 31, 2020
In millions	Contractual Outstanding Principal		Fair Value		Difference		Contractual Outstanding Principal		Fair Value		Difference
Loans receivable at fair value:
Residential mortgage loans—current	$	40	$	40	$	—	$	89	$	89	$	—
Residential mortgage loans (90 days or more past due)		141		37		104		147		31		116

Total loans receivable and other instruments at fair value	$	181	$	77	$	104	$	236	$	120	$	116
Variable interest entity notes	$	922	$	291	$	631	$	1,117	$	350	$	767
Medium-term notes	$	108	$	98	$	10	$	122	$	110	$	12

The differences between the contractual outstanding principal and the fair values on loans receivable, VIE notes and MTNs in the preceding table are primarily attributable to credit risk. This is due to the high rate of defaults on loans (90 days or more past due), the collateral supporting the VIE notes and the nonperformance risk of the Company on its MTNs, all of which resulted in depressed pricing of the financial instruments.

Instrument-Specific Credit Risk of Liabilities Elected Under the Fair Value Option

As of December 31, 2021 and 2020, the cumulative changes in instrument-specific credit risk of liabilities elected under the fair value option were losses of $32 million and $51 million, respectively, reported in “Accumulated other comprehensive income” on the Company’s consolidated balance sheets. Changes in value attributable to

instrument-specific credit risk were derived principally from changes in the Company’s credit spread. For liabilities of VIEs, additional adjustments to instrument-specific credit risk are required, which is determined by an analysis of deal specific performance of collateral that support these liabilities. During the years ended December 31, 2021, 2020 and 2019, the portions of instrument-specific credit risk included in AOCI that were recognized in earnings due to settlement of liabilities were losses of $36 million,

6 million and $28 million, respectively.

- 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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