Ally Bank 2011 Annual Report Download - page 208

Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10−K
Nonrecurring
fair value measurements Lower−of−cost or
fair value
or valuation
reserve
allowance
Total gains
included in
earnings for
the
year ended
December 31, 2010 ($ in millions) Level 1 Level 2 Level 3 Total
Assets
Mortgage loans held−for−sale, net (a) $ — $ — $ 844 $ 844 $ (48) n/m (b)
Commercial finance receivables and loans, net (c)
Automobile — — 379 379 (52) n/m (b)
Mortgage — 28 26 54 (14) n/m (b)
Other — — 107 107 (61) n/m (b)
Total commercial finance receivables and loans, net — 28 512 540 (127)
Other assets
Real estate and other investments (d) — 5 — 5 n/m $ —
Repossessed and foreclosed assets (e) — 43 44 87 (13) n/m (b)
Total assets $ — $ 76 $ 1,400 $ 1,476 $ (188) $ —
n/m = not meaningful
(a) Represents loans held−for−sale that are required to be measured at the lower−of−cost or fair value. The table above includes only loans with fair values below cost during 2010. The
related valuation allowance represents the cumulative adjustment to fair value of those specific assets.
(b) We consider the applicable valuation or loan loss allowance to be the most relevant indicator of the impact on earnings caused by the fair value measurement. Accordingly, the table
above excludes total gains and losses included in earnings for these items. The carrying values are inclusive of the respective valuation or loan loss allowance.
(c) Represents the portion of the portfolio specifically impaired during 2010. The related valuation allowance represents the cumulative adjustment to fair value of those specific
receivables.
(d) Represents model homes impaired during 2010. The total loss included in earnings represents adjustments to the fair value of the portfolio based on the estimated fair value if the
model home is under lease or the estimated fair value if the model home is marketed for sale.
(e) The allowance provided for repossessed and foreclosed assets represents any cumulative valuation adjustment recognized to adjust the assets to fair value.
Fair Value Option for Financial Assets and Financial Liabilities
A description of the financial assets and liabilities elected to be measured at fair value is as follows. Our intent in electing fair value for all these items
was to mitigate a divergence between accounting losses and economic exposure for certain assets and liabilities.
On−balance sheet mortgage securitizations — We elected to measure at fair value certain domestic consumer mortgage finance receivables and
loans and the related debt held in on−balance sheet mortgage securitization structures. The fair value−elected loans are classified as finance
receivable and loans, net, on the Consolidated Balance Sheet. Our policy is to separately record interest income on the fair value−elected loans
(unless the loans are placed on nonaccrual status); however, the accrued interest was excluded from the fair value presentation. We classified the
fair value adjustment recorded for the loans as other income, net of losses, in the Consolidated Statement of Income.
We continued to record the fair value−elected debt balances as long−term debt on the Consolidated Balance Sheet. Our policy is to
separately record interest expense on the fair value−elected debt, which continues to be classified as interest on long−term debt in the
Consolidated Statement of Income. We classified the fair value adjustment recorded for this fair value−elected debt as other income, net of
losses, in the Consolidated Statement of Income.
Conforming and government−insured mortgage loans held−for−sale — We elected the fair value option for conforming and government−insured
mortgage loans held−for−sale funded after July 31, 2009. We elected the fair value option to mitigate earnings volatility by better matching the
accounting for the assets with the related hedges.
Excluded from the fair value option were conforming and government−insured loans funded on or prior to July 31, 2009, and those
repurchased or rerecognized. The loans funded on or prior to July 31, 2009, were ineligible because the election must be made at the time of
funding. Repurchased and rerecognized conforming and government−insured loans were not elected because the election will not mitigate
earning volatility. We repurchase or rerecognize loans due to representation and warranty obligations or conditional repurchase options.
Typically, we will be unable to resell these assets through regular channels due to characteristics of the assets. Since the fair value of these assets
is influenced by factors that cannot be hedged, we did not elect the fair value option.
We carry the fair value−elected conforming and government−insured loans as loans held−for−sale, net, on the Consolidated Balance Sheet.
Our policy is to separately record interest income on the fair value−elected loans (unless they are placed on nonaccrual status); however, the
accrued interest was excluded from the fair value presentation. Upfront fees and costs related to the fair value−elected loans were not deferred or
capitalized. The fair value adjustment recorded for these loans is classified as gain on mortgage and automotive loans, net, in the Consolidated
Statement of Income. In accordance with GAAP, the fair value option
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