Citibank 2011 Annual Report Download - page 280

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The following table provides information about certain mortgage loans HFS carried at fair value at December 31, 2011 and, 2010:
In millions of dollars December 31, 2011 $ECEMBERææ
#ARRYINGæAMOUNTæREPORTEDæONæTHEæ#ONSOLIDATEDæ"ALANCEæ3HEET $6,213 
!GGREGATEæFAIRæVALUEæINæEXCESSæOFæUNPAIDæPRINCIPALæBALANCE 274 
"ALANCEæOFæNONACCRUALæLOANSæORæLOANSæMOREæTHANææDAYSæPASTæDUE—
!GGREGATEæUNPAIDæPRINCIPALæBALANCEæINæEXCESSæOFæFAIRæVALUEæFORæNONACCRUALæLOANSæORæLOANSæMOREæTHANææDAYSæPASTæDUE —
The changes in fair values of these mortgage loans are reported in Other
revenue in the Company’s Consolidated Statement of Income. The changes
in fair value during the years ended December 31, 2011 and 2010 due to
instrument-specific credit risk resulted in a loss of $0.1 million and $1
million, respectively. Related interest income continues to be measured based
on the contractual interest rates and reported as such in the Consolidated
Statement of Income.
Certain consolidated VIEs
The Company has elected the fair value option for all qualified assets
and liabilities of certain VIEs that were consolidated upon the adoption
of SFAS 167 on January 1, 2010, including certain private label mortgage
securitizations, mutual fund deferred sales commissions and collateralized
loan obligation VIEs. The Company elected the fair value option for these
VIEs as the Company believes this method better reflects the economic risks,
since substantially all of the Company’s retained interests in these entities are
carried at fair value.
With respect to the consolidated mortgage VIEs, the Company determined
the fair value for the mortgage loans and long-term debt utilizing internal
valuation techniques. The fair value of the long-term debt measured using
internal valuation techniques is verified, where possible, to prices obtained
from independent vendors. Vendors compile prices from various sources and
may apply matrix pricing for similar securities when no price is observable.
Security pricing associated with long-term debt that is valued using
observable inputs is classified as Level 2 and debt that is valued using one or
more significant unobservable inputs is classified as Level 3. The fair value
of mortgage loans of each VIE is derived from the security pricing. When
substantially all of the long-term debt of a VIE is valued using Level 2 inputs,
the corresponding mortgage loans are classified as Level 2. Otherwise, the
mortgage loans of a VIE are classified as Level 3.
With respect to the consolidated mortgage VIEs for which the fair
value option was elected, the mortgage loans are classified as Loans on
Citigroup’s Consolidated Balance Sheet. The changes in fair value of
the loans are reported as Other revenue in the Company’s Consolidated
Statement of Income. Related interest revenue is measured based on the
contractual interest rates and reported as Interest revenue in the Company’s
Consolidated Statement of Income. Information about these mortgage
loans is included in the table below. The change in fair value of these loans
due to instrument-specific credit risk was a loss of $275 million a gain of
$190 million for the years ended December 31, 2011 and 2010, respectively.
The debt issued by these consolidated VIEs is classified as long-term
debt on Citigroup’s Consolidated Balance Sheet. The changes in fair value
for the majority of these liabilities are reported in Other revenue in the
Company’s Consolidated Statement of Income. Related interest expense is
measured based on the contractual interest rates and reported as such in
the Consolidated Statement of Income. The aggregate unpaid principal
balance of long-term debt of these consolidated VIEs exceeded the aggregate
fair value by $984 million and $857 million as of December 31, 2011 and
2010, respectively.