MetLife 2011 Annual Report Download - page 60

Mortgage Loan Credit Quality — Monitoring Process — Residential Mortgage Loans. The Company has a conservative residential mortgage loan
portfolio and does not hold any option ARMs, sub-prime or low teaser rate loans. Higher risk loans include those that are classified as restructured,
potentially delinquent, delinquent or in foreclosure, as well as loans with higher loan-to-value ratios and interest-only loans. The Company’s investment in
residential junior lien loans and residential mortgage loans with a loan-to-value ratio of 80% or more was $74 million and $95 million at December 31,
2011 and 2010, respectively, and certain of the higher loan-to-value residential mortgage loans have mortgage insurance coverage which reduces the
loan-to-value ratio to less than 80%. Additionally, the Company’s investment in traditional residential interest-only mortgage loans was $6 million and
$389 million at December 31, 2011 and 2010, respectively.
Mortgage Loan Valuation Allowances. The Company’s valuation allowances are established both on a loan specific basis for those loans
considered impaired where a property specific or market specific risk has been identified that could likely result in a future loss, as well as for poolsof
loans with similar risk characteristics where a property specific or market specific risk has not been identified, but for which the Company expects to
incur a loss. Accordingly, a valuation allowance is provided to absorb these estimated probable credit losses. The Company records additions to and
decreases in its valuation allowances and gains and losses from the sale of loans in net investment gains (losses).
The Company records valuation allowances for loans considered to be impaired when it is probable that, based upon current information and
events, the Company will be unable to collect all amounts due under the contractual terms of the loan agreement. Based on the facts and
circumstances of the individual loans being impaired, loan specific valuation allowances are established for the excess carrying value of the loan over
either: (i) the present value of expected future cash flows discounted at the loan’s original effective interest rate; (ii) the estimated fair value of the loan’s
underlying collateral if the loan is in the process of foreclosure or otherwise collateral dependent; or (iii) the loan’s observable market price.
The Company also establishes valuation allowances for loan losses for pools of loans with similar risk characteristics, such as property types,
loan-to-value ratios and debt service coverage ratios when, based on past experience, it is probable that a credit event has occurred and the amount of
loss can be reasonably estimated. These valuation allowances are based on loan risk characteristics, historical default rates and loss severities, real
estate market fundamentals and outlook, as well as other relevant factors.
The determination of the amount of, and additions or decreases to, valuation allowances is based upon the Company’s periodic evaluation and
assessment of known and inherent risks associated with its loan portfolios. Such evaluations and assessments are based upon several factors,
including the Company’s experience for loan losses, defaults and loss severity, and loss expectations for loans with similar risk characteristics. These
evaluations and assessments are revised as conditions change and new information becomes available. We update our evaluations regularly, which
can cause the valuation allowances to increase or decrease over time as such evaluations are revised. Negative credit migration including an actual or
expected increase in the level of problem loans will result in an increase in the valuation allowance. Positive credit migration including an actual or
expected decrease in the level of problem loans will result in a decrease in the valuation allowance. Such changes in the valuation allowance are
recorded in net investment gains (losses).
See Note 3 of the Notes to the Consolidated Financial Statements for a table that presents the activity in the Company’s valuation allowances, by
portfolio segment, for the years ended December 31, 2011, 2010 and 2009; and for tables that present the Company’s valuation allowances, by type
of credit loss, by portfolio segment, at December 31, 2011 and 2010.
Impairments to estimated fair value included within net investment gains (losses) for impaired mortgage loans were $18 million and $17 million for the
year ended December 31, 2011 and 2010, respectively. The estimated fair value of the impaired mortgage loans after these impairments was $209
million and $197 million at December 31, 2011 and 2010, respectively, which are carried at estimated fair value based on the value of the underlying
collateral or independent broker quotations, if lower, of which $151 million and $164 million related to impaired mortgage loans held-for-investment and
$58 million and $33 million to certain mortgage loans held-for-sale, at December 31, 2011 and 2010, respectively. These impaired mortgage loans
were recorded at estimated fair value and represent a nonrecurring fair value measurement. The estimated fair value is categorized as Level 3 due to the
lack of transparency and unobservability in collateral valuation and independent broker quotations.
Real Estate and Real Estate Joint Ventures
The Company diversifies its real estate investments by both geographic region and property type to reduce risk of concentration. Of the Company’s
real estate investments, 83% are primarily located in the United States, with the remaining 17% located outside the United States, at December 31,
2011. The three locations with the largest real estate investments were California, Japan and Florida at 19%, 14%, and 12%, respectively, at
December 31, 2011. See Note 3 of the Notes to the Consolidated Financial Statements for additional information regarding real estate and real estate
joint venture investments.
Real estate and real estate joint venture investments by property type are categorized as follows:
December 31,
2011 2010
Carrying
Value %of Total Carrying Value %of Total
(In millions) (In millions)
Office .............................................................. $5,089 59.4% $4,369 54.4%
Apartments ......................................................... 1,610 18.8 1,774 22.1
Real estate investment funds ............................................ 562 6.6 552 6.9
Industrial ........................................................... 427 5.0 433 5.4
Retail .............................................................. 332 3.9 389 4.8
Hotel .............................................................. 218 2.5 233 2.9
Land .............................................................. 126 1.5 133 1.7
Agriculture .......................................................... 14 0.2 17 0.2
Other .............................................................. 185 2.1 130 1.6
Total real estate and real estate joint ventures ............................. $8,563 100.0% $8,030 100.0%
56 MetLife, Inc.