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NOTE 3 FAIR VALUE | 12 Months Ended
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Dec. 31, 2011
Fair Value Disclosures [Text Block] | NOTE 3 FAIR VALUE The carrying amounts and the estimated fair values of our financial instruments are as follows at December 31:
|  | 2011 |  |  | 2010 |
|  | Carrying Value |  |  | Fair Value |  |  | Carrying Value |  |  | Fair Value |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |
Loans held for resale |  | $ | 20,633 |  |  | $ | 20,633 |  |  | $ | 25,803 |  |  | $ | 25,803 |
Loans, net – restricted for securitization investors |  |  | 58,560 |  |  |  | 55,165 |  |  |  | 67,340 |  |  |  | 64,795 |
Advances |  |  | 3,733,502 |  |  |  | 3,733,502 |  |  |  | 2,108,885 |  |  |  | 2,108,885 |
Receivables, net |  |  | 83,202 |  |  |  | 83,202 |  |  |  | 69,518 |  |  |  | 69,518 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Match funded liabilities |  | $ | 2,558,951 |  |  | $ | 2,569,131 |  |  | $ | 1,482,529 |  |  | $ | 1,486,476 |
Lines of credit and other secured borrowings |  |  | 540,369 |  |  |  | 550,860 |  |  |  | 246,073 |  |  |  | 252,722 |
Secured borrowings – owed to securitization investors |  |  | 53,323 |  |  |  | 52,652 |  |  |  | 62,705 |  |  |  | 62,105 |
Debt securities |  |  | 82,554 |  |  |  | 92,125 |  |  |  | 82,554 |  |  |  | 75,325 |
Derivative financial instruments, net |  | $ | (16,676 | ) |  | $ | (16,676 | ) |  | $ | (15,351 | ) |  | $ | (15,351 | )
Fair value is estimated based on a hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The fair value hierarchy prioritizes the inputs to valuation techniques into three broad levels whereby the highest priority is given to Level 1 inputs and the lowest to Level 3 inputs. The three broad categories are:
| Level 1: | Quoted prices in active markets for identical assets or liabilities.
| Level 2: | Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly for substantially the full term of the financial instrument.
| Level 3: | Unobservable inputs for the asset or liability.
Where available, we utilize quoted market prices or observable inputs rather than unobservable inputs to determine fair value. We classify assets in their entirety based on the lowest level of input that is significant to the fair value measurement. The following table presents assets and liabilities measured at fair value categorized by input level within the fair value hierarchy:
|  | Carrying value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
At December 31, 2011: |  |  |  |  |  |  |  |  |  |  |  |
Measured at fair value on a recurring basis: |  |  |  |  |  |  |  |  |  |  |  |
Derivative financial instruments, net (1) |  | $ | (16,676 | ) |  | $ | — |  |  | $ | — |  |  | $ | (16,676 | )
Measured at fair value on a non-recurring basis: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans held for resale (2) |  |  | 20,633 |  |  |  | — |  |  |  | — |  |  |  | 20,633 |
Mortgage servicing rights (3) |  |  | 214 |  |  |  | — |  |  |  | — |  |  |  | 214 |
At December 31, 2010: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Measured at fair value on a recurring basis: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative financial instruments, net (1) |  | $ | (15,351 | ) |  | $ | — |  |  | $ | — |  |  | $ | (15,351 | )
Measured at fair value on a non-recurring basis: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans held for resale (2) |  |  | 25,803 |  |  |  | — |  |  |  | — |  |  |  | 25,803 |
Mortgage servicing rights (3) |  |  | 334 |  |  |  | — |  |  |  | — |  |  |  | 334 |
(1) | The derivative financial instruments are not exchange-traded and therefore quoted market prices or other observable inputs are not available. Therefore, we classify derivatives within Level 3 of the fair value hierarchy. Fair value is based on certain information provided by third-party pricing sources. See Note 19 for additional information on derivative financial instruments.
(2) | Loans held for resale are measured at fair value on a non-recurring basis. All loans held for resale were measured at fair value because the cost exceeded the estimated fair value. Current market illiquidity has reduced the availability of observable pricing data. Consequently, we classify these loans within Level 3 of the fair value hierarchy. See Note 4 for additional information on loans held for resale.
(3) | The carrying value of MSRs at December 31, 2011 and 2010 is net of a valuation allowance for impairment of $2,290 and $2,864, respectively. The carrying value of the impaired stratum, net of the valuation allowance, was $214 and $334 at December 31, 2011 and 2010, respectively. The estimated fair value exceeded amortized cost for all other strata. See Note 8 for additional information on MSRs.
The following tables present a reconciliation of the changes in fair value of Level 3 assets that we measure at fair value on a recurring basis:
For the year ended December 31, 2011: |  | Derivative Financial Instruments |
Beginning balance |  | $ | (15,351 | )
Purchases, issuances, sales and settlements: |  |  |  |
Purchases |  |  | 3,688 |
Issuances |  |  | — |
Sales |  |  | — |
Settlements |  |  | 85 |
|  |  | 3,773 |
Total realized and unrealized gains and (losses) (1): |  |  |  |
Included in Other, net |  |  | (5,881 | )
Included in Other comprehensive income (loss) |  |  | 783 |
|  |  | (5,098 | )
Transfers in and / or out of Level 3 |  |  | — |
Ending balance |  | $ | (16,676 | )
|  |  |  |  | Trading Securities |  |  |  |
For the year ended December 31, 2010: |  | Derivative Financial Instruments |  |  | Auction Rate Securities |  |  | Subordinates and Residuals |  |  | Total |
Beginning balance (2) (3) |  | $ | (45 | ) |  | $ | 247,464 |  |  | $ | 59 |  |  | $ | 247,478 |
Purchases, issuances, sales and settlements: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Purchases |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Issuances |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Sales |  |  | — |  |  |  | (146,810 | ) |  |  | — |  |  |  | (146,810 | )
Settlements |  |  | (738 | ) |  |  | (92,745 | ) |  |  | — |  |  |  | (93,483 | )
|  |  | (738 | ) |  |  | (239,555 | ) |  |  | — |  |  |  | (240,293 | )
Total realized and unrealized gains and (losses) (1): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Included in Gain (loss) on trading securities |  |  | — |  |  |  | (7,909 | ) |  |  | (59 | ) |  |  | (7,968 | )
Included in Other, net |  |  | (133 | ) |  |  | — |  |  |  | — |  |  |  | (133 | )
Included in Other comprehensive income (loss) |  |  | (14,435 | ) |  |  | — |  |  |  | — |  |  |  | (14,435 | )
|  |  | (14,568 | ) |  |  | (7,909 | ) |  |  | (59 | ) |  |  | (22,536 | )
Transfers in and / or out of Level 3 |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Ending balance |  | $ | (15,351 | ) |  | $ | — |  |  | $ | — |  |  | $ | (15,351 | )
|  |  |  |  | Trading Securities |  |  |
For the year ended December 31, 2009: |  | Derivative Financial Instruments |  |  | Auction Rate Securities |  |  | Subordinates and Residuals |  |  | Total |
Beginning balance |  | $ | 193 |  |  | $ | 239,301 |  |  | $ | 4,369 |  |  | $ | 243,863 |
Purchases, issuances, sales and settlements: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Purchases |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Issuances |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Sales |  |  | — |  |  |  | (3,700 | ) |  |  | — |  |  |  | (3,700 | )
Settlements |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
|  |  | — |  |  |  | (3,700 | ) |  |  | — |  |  |  | (3,700 | )
Total realized and unrealized gains and (losses): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Included in Gain (loss) on trading securities |  |  | — |  |  |  | 11,863 |  |  |  | (677 | ) |  |  | 11,186 |
Included in Other, net |  |  | 588 |  |  |  | — |  |  |  | — |  |  |  | 588 |
Included in Other comprehensive income (loss) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
|  |  | 588 |  |  |  | 11,863 |  |  |  | (677 | ) |  |  | 11,774 |
Transfers in and / or out of Level 3 |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Ending balance |  | $ | 781 |  |  | $ | 247,464 |  |  | $ | 3,692 |  |  | $ | 251,937 |
(1) | Total losses attributable to derivative financial instruments still held at December 31, 2011 and 2010 were $5,114 and $13,775, respectively.
(2) | The fair values of derivative financial instruments as of January 1, 2010 were adjusted to include $(826) related to an interest rate swap that is held by one of the newly consolidated securitization trusts.
(3) | Effective January 1, 2010, we eliminated our investment in subordinate and residual securities that were issued by consolidated securitization trusts as more fully described in Note 1—Securitizations of Residential Mortgage Loans.
The methodologies that we use and key assumptions that we make to estimate the fair value of instruments are described in more detail by instrument below: Derivative Financial Instruments Exchange-traded derivative financial instruments are valued based on quoted market prices. If quoted market prices or other observable inputs are not available, fair value is based on certain information provided by third-party pricing sources. We review this information to ensure that it provides a reasonable basis for estimating fair value. Our review is designed to identify information that appears stale, information that has changed significantly from the prior period, and other indicators that the information may not be accurate. Loans Held for Resale Loans held for resale are reported at the lower of cost or fair value. We account for the excess of cost over fair value as a valuation allowance with changes in the valuation allowance included in Loss on loans held for resale, net, in the period in which the change occurs. All loans held for resale were measured at fair value because their cost of $34,890 exceeded their estimated fair value of $20,633 at December 31, 2011. When we enter into an agreement to sell a loan to an investor at a set price, the loan is valued at the commitment price. The fair value of loans for which we do not have a firm commitment to sell is based upon a discounted cash flow analysis. We stratify our fair value estimate of uncommitted loans held for resale based upon the delinquency status of the loans. We base the fair value of our performing loans on the expected future cash flows discounted at a rate commensurate with the risk of the estimated cash flows. Significant assumptions include collateral and loan characteristics, prevailing market conditions and the creditworthiness of the borrower. The fair value of our non-performing loans is determined based upon the underlying collateral of the loan and the estimated period and cost of disposition of the collateral. Loans – Restricted for Securitization Investors Loans – restricted for securitization investors are reported at cost, less an allowance for loan losses and are comprised of loans that are secured by first or second liens on one- to four-family residential properties. We base the fair value of our loans on the expected future cash flows discounted at a rate commensurate with the risk of the estimated cash flows. Significant assumptions include expected prepayment rates and delinquency and cumulative loss curves. Mortgage Servicing Rights We estimate the fair value of our MSRs by calculating the present value of expected future cash flows utilizing assumptions that we believe are used by market participants. The most significant assumptions used in our internal valuation are the speed at which mortgages prepay and delinquency experience, both of which we derive from our historical experience and available market data. Other assumptions used in our internal valuation are:
| ● | Cost of servicing |  | ● | Interest rate used for computing float earnings
| ● | Discount rate |  | ● | Compensating interest expense
| ● | Interest rate used for computing the cost of Servicing advances |  | ● | Collection rate of other ancillary fees
The significant components of the estimated future cash inflows for MSRs include servicing fees, late fees, prepayment penalties, float earnings and other ancillary fees. Significant cash outflows include the cost of servicing, the cost of financing servicing advances and compensating interest payments. We derive prepayment speeds and delinquency assumptions from historical experience adjusted for prevailing market conditions. We develop the discount rate internally, and we consider external market-based assumptions in determining the interest rate for the cost of financing advances, the interest rate for float earnings and the cost of servicing. The more significant assumptions used in the December 31, 2011 valuation include prepayment speeds ranging from 13.96% to 21.71% (depending on loan type) and delinquency rates ranging from 15.61% to 25.49% (depending on loan type). Other assumptions include an interest rate of 1-month LIBOR plus 4% for computing the cost of financing advances, an interest rate of 1-month LIBOR for computing float earnings and a discount rate of 20%. We perform an impairment analysis based on the difference between the carrying amount and fair value after grouping our loans into the applicable strata based on one or more of the predominant risk characteristics of the underlying loans. The risk factors used to assign loans to strata include the credit score (FICO) of the borrower, the loan to value ratio and the default risk. Our strata include:
| ● | Subprime |  | ● | Re-performing
| ● | ALT A |  | ● | Special servicing
| ● | High-loan-to-value |  | ● | Other
Advances We value advances that we make on loans that we service for others at their carrying amounts because they have no stated maturity, generally are realized within a relatively short period of time and do not bear interest. Receivables The carrying value of receivables generally approximates fair value because of the relatively short period of time between their origination and realization. Borrowings Borrowings not subject to a hedging relationship are carried at amortized cost. We base the fair value of our debt securities on quoted market prices. The carrying value of match funded liabilities and secured borrowings that bear interest at a rate that is adjusted regularly based on a market index approximates fair value. For other match funded or secured borrowings that bear interest at a fixed rate, we determine fair value by discounting the contractual future principal and interest repayments at a market rate commensurate with the risk of the estimated cash flows. We carry certain zero-coupon long-term secured borrowings with an implicit fixed rate at a discounted value and determine fair value by discounting the contractual future principal repayments at a market rate that is commensurate with the risk of the estimated cash flows.

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- 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. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19296-110258 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 159 -Paragraph 17-22, 27, 28 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13433-108611 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15C, 15D -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. 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Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13537-108611 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 133 -Paragraph 44A, 44B -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. 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