Ford 2011 Annual Report Download - page 117

Notes to the Financial Statements
Ford Motor Company | 2011 Annual Report 115
NOTE 7. FINANCE RECEIVABLES (Continued)
The recorded investment of non-consumer receivables that were impaired at December 31, 2011 and 2010, was
$64 million, or 0.2% of the non-consumer receivables and $102 million, or 0.4% of the non-consumer receivables,
respectively.
Troubled Debt Restructurings
Ford Credit has applied the requirements of the new accounting standard related to TDRs to restructurings occurring
on or after January 1, 2011. Evaluation under the new guidance resulted in certain consumer finance receivables that are
now considered TDRs. Under the old guidance only certain non-consumer receivables were considered TDRs.
A restructuring of debt constitutes a TDR if Ford Credit grants a concession to a customer or borrower for economic or
legal reasons related to the debtor's financial difficulties that Ford Credit otherwise would not consider.
Consumer. While payment extensions are granted on consumer receivables in the normal course of the collection
process, for consumers not considered to be in financial difficulty, no concessions are made on the principal balance
loaned or the interest rate charged. Payment extensions typically result in a short-term deferral of the customer's normal
monthly payment and do not constitute a TDR.
Consumer receivable contracts may be modified to lower the customer's payment by extending the term of the
contract or lowering the interest rate as a remedy to avoid or cure delinquency. Ford Credit does not grant concessions
on the principal balance for re-written contracts. Contracts that have a modified interest rate that is below the market rate
are considered to be TDRs.
Consumer receivables modified in reorganization proceedings pursuant to the U.S. Bankruptcy Code are considered
to be TDRs. Ford Credit does not record changes to the recorded investment per the original contract for these TDRs
until all payments and requirements of the reorganization plan are met.
The outstanding recorded investment at time of modification for consumer receivables that are considered to be TDRs
was $370 million, or 0.8% of Ford Credit's consumer receivables at December 31, 2011. A subsequent default occurs
when contracts that were previously modified in TDRs within the last twelve months and subsequently had past due
payments that resulted in repossession. The subsequent default rate for consumer contracts was 3.7% of TDRs at
December 31, 2011. Ford Credit had no consumer receivables considered to be TDRs at December 31, 2010.
Consumer receivables involved in TDRs are specifically assessed for impairment. A specific allowance is estimated
based on the present value of the expected future cash flows of the receivable discounted at the loan's original effective
interest rate or the fair value of any collateral adjusted for estimated costs to sell. For loans where foreclosure is probable,
the fair value of the collateral is used to estimate the specific impairment. The allowance for credit losses related to consumer
TDRs was $16 million at December 31, 2011.
Non-Consumer. Within Ford Credit's non-consumer receivables segment, only dealer loans subject to forbearance,
moratoriums, extension agreements or other actions intended to minimize economic loss and to avoid foreclosure or
repossession of collateral are classified as TDRs. Ford Credit does not grant concessions on the principal balance of
dealer loans. The outstanding recorded investment of dealer loans involved in TDRs is $13 million, or less than 0.1% of
Ford Credit's non-consumer receivables, at December 31, 2011 and 2010. A subsequent default occurs when receivables
that were previously modified in TDRs within the last twelve months and subsequently had past due payments that
resulted in foreclosure or charge-off. The subsequent default rate for non-consumer contracts for the years ending
December 31, 2011 and 2010 was 25% and 17%, respectively.
Dealer loans involved in TDRs are assessed for impairment and included in Ford Credit's allowance for credit losses
based on either the present value of the expected future cash flows of the receivable discounted at the loan's original
effective interest rate, or the fair value of the collateral adjusted for estimated costs to sell. For loans where foreclosure is
probable, the fair value of the collateral is used to estimate the specific impairment. An impairment charge is recorded as
part of the provision to the allowance for credit losses for the amount by which the recorded investment of the receivable
exceeds its estimated fair value. The allowance for credit losses related to non-consumer TDRs was $6 million at
December 31, 2011.
See Note 9 for additional information related to the development of Ford Credit's allowance for credit losses.