UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

     (Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-16577

(Exact name of registrant as specified in its charter).

Michigan		38-3150651
(State or other jurisdiction of Incorporation or organization)		(I.R.S. Employer Identification No.)
5151 Corporate Drive, Troy, Michigan		48098-2639
(Address of principal executive offices)		(Zip code)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety days.

Yes þ No o.

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No o.

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o (Do not check if smaller reporting company)		Smaller reporting company o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ.

     As of May 6, 2011, 553,883,609 shares of the registrant’s common stock, $0.01 par value, were issued and outstanding.

 

 

FORWARD—LOOKING STATEMENTS

     This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Forward-looking statements, by their nature, involve estimates, projections, goals, forecasts, assumptions, risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in a forward-looking statement. Examples of forward-looking statements include statements regarding our expectations, beliefs, plans, goals, objectives and future financial or other performance. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and variations of such words and similar expressions are intended to identify such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made. Except to fulfill our obligations under the U.S. securities laws, we undertake no obligation to update any such statement to reflect events or circumstances after the date on which it is made.

     There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements. Factors that might cause such a difference include:

	•		Volatile interest rates that impact, amongst other things, (i) the mortgage banking business, (ii) our ability to originate loans and sell assets at a profit, (iii) prepayment speeds and (iv) our cost of funds, could adversely affect earnings, growth opportunities and our ability to pay dividends to stockholders;
	•		Our ability to raise additional capital;
	•		Competitive factors for loans could negatively impact gain on loan sale margins;
	•		Competition from banking and non-banking companies for deposits and loans can affect our growth opportunities, earnings, gain on sale margins, market share and ability to transform business model;
	•		Changes in the regulation of financial services companies and government-sponsored housing enterprises, and in particular, declines in the liquidity of the mortgage loan secondary market, could adversely affect business;
	•		Changes in regulatory capital requirements or an inability to achieve desired capital ratios could adversely affect our growth and earnings opportunities and our ability to originate certain types of loans, as well as our ability to sell certain types of assets for fair market value or to transform business model;
	•		General business and economic conditions, including unemployment rates, movements in interest rates, the slope of the yield curve, any increase in mortgage fraud and other criminal activity and the further decline of asset values in certain geographic markets, may significantly affect our business activities, loan losses, reserves, earnings and business prospects;
	•		Factors concerning the implementation of proposed enhancements and transformation of the business model could result in slower implementation times than we anticipate and negate any competitive advantage that we may enjoy;
	•		Actions of mortgage loan purchasers, guarantors and insurers regarding repurchases and indemnity demands and uncertainty related to foreclosure procedures could adversely affect business activities and earnings;
	•		The Dodd-Frank Wall Street Reform and Consumer Protection Act will, among other things, eliminate the Office of Thrift Supervision, tighten capital standards, create a new Bureau of Consumer Financial Protection and result in new laws, regulations and regulatory supervisors that are expected to increase our costs of operations; and
	•		Both the volume and the nature of consumer actions and other forms of litigation against financial institutions may increase and to the extent that such actions are brought against us, the cost of defending such suits as well as potential exposure could increase our costs of operations.

     All of the above factors are difficult to predict, contain uncertainties that may materially affect actual results, and may be beyond our control. New factors emerge from time to time, and it is not possible for our management to predict all such factors or to assess the effect of each such factor on our business.

     Please also refer to Item 1A. Risk Factors to Part II of this report, Item 1A to Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2010 and Item 1A to Part II of this Quarterly Report on Form 10-Q, which are incorporated by reference herein, for further information on these and other factors affecting us.

     Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore any of these statements included herein may prove to be inaccurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved.

FLAGSTAR BANCORP, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2011
TABLE OF CONTENTS

PART I. — FINANCIAL INFORMATION

Item 1. Financial Statements

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Item 4. Controls and Procedures

PART II. — OTHER INFORMATION

Item 1. Legal Proceedings

Item 1A. Risk Factors

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Item 3. Defaults upon Senior Securities

Item 4. (Removed and Reserved)

Item 5. Other Information

Item 6. Exhibits

SIGNATURES

EX-31.1

EX-31.2

EX-32.1

EX-32.2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

     The consolidated financial statements of the Company are as follows:

Consolidated Statements of Financial Condition — March 31, 2011 (unaudited) and December 31, 2010

Consolidated Statements of Operations — For the three months ended March 31, 2011 and 2010 (Unaudited)

Consolidated Statements of Stockholders’ Equity and Comprehensive Loss — For the three months ended March 31, 2011 and 2010 (Unaudited)

Consolidated Statements of Cash Flows — For the three months ended March 31, 2011 and 2010 (Unaudited)

Notes to Consolidated Financial Statements (Unaudited)

Flagstar Bancorp, Inc.

		March 31,				December 31,
		2011				2010
		(Unaudited)
Assets
Cash and cash items		$	49,677			$	60,039
Interest-earning deposits			1,665,342				893,495
Cash and cash equivalents			1,715,019				953,534
Securities classified as trading			160,650				160,775
Securities classified as available-for-sale			452,368				475,225
Loans available-for-sale ($1,484,824 and $2,343,638 at fair value at March 31, 2011 and December 31, 2010, respectively)			1,609,501				2,585,200
Loans held-for-investment ($22,198 and $19,011 at fair value at March 31, 2011 and December 31, 2010, respectively)			5,764,675				6,305,483
Less: allowance for loan losses			(271,000	)			(274,000	)
Loans held-for-investment, net			5,493,675				6,031,483
Total interest-earning assets			9,381,536				10,146,178
Accrued interest receivable			24,640				27,424
Repossessed assets, net			146,372				151,085
Federal Home Loan Bank stock			337,190				337,190
Premises and equipment, net			233,621				232,203
Mortgage servicing rights at fair value			635,122				580,299
Government insured repurchased assets			1,781,825				1,731,276
Other assets			426,984				377,810
Total assets		$	13,016,967			$	13,643,504
Liabilities and Stockholders’ Equity
Deposits		$	7,748,910			$	7,998,099
Federal Home Loan Bank advances			3,400,000				3,725,083
Long-term debt			248,610				248,610
Total interest-bearing liabilities			11,397,520				11,971,792
Accrued interest payable			10,124				12,965
Secondary market reserve			79,400				79,400
Other liabilities			292,901				319,684
Total liabilities			11,779,945				12,383,841
Commitments and contingencies — Note 21			—				—
Stockholders’ Equity
Preferred stock $0.01 par value, liquidation value $1,000 per share, 25,000,000 shares authorized; 266,657 issued and outstanding at March 31, 2011 and December 31, 2010, respectively			3				3
Common stock $0.01 par value, 700,000,000 shares authorized; 553,711,848 and 553,313,113 shares issued and outstanding at March 31, 2011 and December 31, 2010, respectively			5,537				5,533
Additional paid in capital — preferred			250,569				249,193
Additional paid in capital — common			1,462,620				1,461,373
Accumulated other comprehensive loss			(9,760	)			(16,165	)
Retained earnings (accumulated deficit)			(471,947	)			(440,274	)
Total stockholders’ equity			1,237,022				1,259,663
Total liabilities and stockholders’ equity		$	13,016,967			$	13,643,504

The accompanying notes are an integral part of these Consolidated Financial Statements.

Flagstar Bancorp, Inc.

		For the Three Months Ended
		March 31,
		2011				2010
		(Unaudited)
Interest Income
Loans		$	89,340			$	110,195
Securities classified as available-for-sale or trading			8,097				15,367
Interest-earning deposits and other			968				644
Total interest income			98,405				126,206
Interest Expense
Deposits			27,022				41,887
FHLB advances			29,979				41,788
Security repurchase agreements			—				1,153
Other			1,606				3,695
Total interest expense			58,607				88,523
Net interest income			39,798				37,683
Provision for loan losses			28,309				63,559
Net interest expense after provision for loan losses			11,489				(25,876	)
Non-Interest Income
Loan fees and charges			16,138				16,329
Deposit fees and charges			7,500				8,413
Loan administration			39,336				26,150
Loss on trading securities			(74	)			(3,312	)
Loss on residual and transferors’ interest			(2,381	)			(2,682	)
Net gain on loan sales			50,184				52,566
Net loss on sales of mortgage servicing rights			(112	)			(2,213	)
Net gain on securities available-for-sale			—				2,166
Net loss on sale of assets			(1,036	)			—
Total other-than-temporary impairment gain (loss)			—				15,688
Gain (loss) recognized in other comprehensive income before taxes			—				18,974
Net impairment losses recognized in earnings			—				(3,286	)
Other fees and charges			(13,289	)			(22,133	)
Total non-interest income			96,266				71,998
Non-Interest Expense
Compensation, commissions and benefits			63,308				61,022
Occupancy and equipment			16,618				16,011
Asset resolution			25,335				16,573
Federal insurance premiums			8,725				10,047
Other taxes			866				855
Warrant (income) expense			(827	)			1,227
General and administrative			20,430				17,607
Total non-interest expense			134,455				123,342
Loss before federal income taxes			(26,700	)			(77,220	)
Provision for federal income taxes			264				—
Net Loss			(26,964	)			(77,220	)
Preferred stock dividend/accretion			(4,710	)			(4,680	)
Net loss applicable to common stock		$	(31,674	)		$	(81,900	)
Loss per share
Basic (1)		$	(0.06	)		$	(1.05	)
Diluted (1)		$	(0.06	)		$	(1.05	)

The accompanying notes are an integral part of these Consolidated Financial Statements.

Flagstar Bancorp, Inc.

										Additional				Additional				Accumulated				Retained
										Paid in				Paid in				Other				Earnings				Total
		Preferred				Common				Capital				Capital				Comprehensive				(Accumulated				Stockholders’
		Stock				Stock				Preferred				Common				Income (Loss)				Deficit)				Equity
Balance at December 31, 2009		$	3			$	469			$	243,778			$	447,449			$	(48,263	)		$	(46,712	)		$	596,724
(Unaudited)
Net loss			—				—				—				—				—				(77,220	)			(77,220	)
Reclassification of gain on sale of securities available-for-sale			—				—				—				—				(1,594	)			—				(1,594	)
Reclassification of loss on securities available-for-sale due to other-than- temporary impairment			—				—				—				—				3,286				—				3,286
Change in net unrealized loss on securities available-for-sale			—				—				—				—				7,019				—				7,019
Total comprehensive loss																											(68,509	)
Issuance of common stock			—				999				—				576,251				—				—				577,250
Restricted stock issued			—				—				—				(12	)			—				—				(12	)
Dividends on preferred stock			—				—				—				—				—				(3,334	)			(3,334	)
Accretion of preferred stock			—				—				1,346				—				—				(1,346	)			—
Stock-based compensation			—				2				—				2,759				—				—				2,761
Tax effect from stock-based compensation			—				—				—				(116	)			—				—				(116	)
Balance at March 31, 2010		$	3			$	1,470			$	245,124			$	1,026,331			$	(39,552	)		$	(128,612	)		$	1,104,764
Balance at December 31, 2010		$	3			$	5,533			$	249,193			$	1,461,373			$	(16,165	)		$	(440,274	)		$	1,259,663
(Unaudited)
Net loss			—				—				—				—				—				(26,964	)			(26,964	)
Change in net unrealized loss on securities available-for-sale			—				—				—				—				6,405				—				6,405
Total comprehensive loss																											(20,559	)
Restricted stock issued			—				2				—				(2	)			—				—				—
Dividends on preferred stock			—				—				—				—				—				(3,333	)			(3,333	)
Accretion of preferred stock			—				—				1,376				—				—				(1,376	)			—
Stock-based compensation			—				2				—				1,249				—				—				1,251
Balance at March 31, 2011		$	3			$	5,537			$	250,569			$	1,462,620			$	(9,760	)		$	(471,947	)		$	1,237,022

The accompanying notes are an integral part of these Consolidated Financial Statements.

Flagstar Bancorp, Inc.

		For the Three Months Ended
		March 31,
		2011				2010
Operating Activities		(Unaudited)
Net loss		$	(26,964	)		$	(77,220	)
Adjustments to net loss to net cash used in operating activities
Provision for loan losses			28,309				63,559
Depreciation and amortization			3,642				4,648
Increase in valuation allowance in mortgage servicing rights			—				176
(Loss) gain on fair value of residential first mortgage servicing rights net of hedging gains (losses)			(4,123	)			41,471
Stock-based compensation expense			1,251				2,761
Gain on interest rate swap			—				(221	)
Net loss on the sale of assets			1,158				4,480
Net gain on loan sales			(50,184	)			(52,566	)
Net loss on sales of mortgage servicing rights			112				2,213
Net gain on securities classified as available-for-sale			—				(2,166	)
Other than temporary impairment losses on securities classified as available-for-sale			—				3,286
Net loss on trading securities			74				3,312
Net loss on residual and transferor interest			2,381				2,682
Proceeds from sales of loans available-for-sale			5,914,461				5,079,635
Origination and repurchase of mortgage loans available-for-sale, net of principal repayments			(4,949,989	)			(4,874,084	)
Purchase of trading securities			—				(746,589	)
Increase (decrease) in accrued interest receivable			2,784				(7,766	)
Proceeds from sales of trading securities			—				178,480
Increase in government insured repurchased assets			(50,549	)			(100,620	)
Increase in other assets			(49,286	)			(6,418	)
Decrease in accrued interest payable			(2,841	)			(4,360	)
Net tax effect of stock grants issued			—				115
Increase (decrease) liability for checks issued			3,830				(3,930	)
Increase in federal income taxes payable			—				457
(Decrease) increase in payable for mortgage repurchase option			(19,743	)			441,020
Decrease in other liabilities			(8,553	)			(2,191	)
Net cash provided in operating activities		$	795,790			$	9,836
Investing Activities
Net change in other investments			—				11,173
Proceeds from the sale of investment securities available-for-sale			—				54,948
Net repayment (purchase) of investment securities available-for-sale			29,299				(176,078	)
Net proceeds from sales of portfolio loans			6,736				(109,496	)
Origination of portfolio loans, net of principal repayments			476,784				44,167
Proceeds from the disposition of repossessed assets			37,572				48,943
Acquisitions of premises and equipment, net of proceeds			(5,046	)			(2,949	)
Proceeds from the sale of mortgage servicing rights			—				112,848
Net cash provided by (used in) investing activities		$	545,345			$	(16,444	)

Flagstar Bancorp, Inc.
Consolidated Statements of Cash Flows, Continued
(In thousands)

		For the Three Months Ended March 31,
		2011				2010
						(Unaudited)
Financing Activities
Net decrease in deposit accounts		$	(249,189	)		$	(632,790	)
Net decrease in Federal Home Loan Bank advances			(325,083	)			—
Net (disbursement) receipt of payments of loans serviced for others			(9,023	)			14,636
Net receipt (disbursement) of escrow payments			6,978				(705	)
Net tax benefit for stock grants issued			—				(116	)
Dividends paid to preferred stockholders			(3,333	)			(3,334	)
Issuance of common stock			—				577,250
Net cash used in financing activities			(579,650	)			(45,059	)
Net increase (decrease) in cash and cash equivalents			761,485				(111,339	)
Beginning cash and cash equivalents			953,534				1,082,489
Ending cash and cash equivalents		$	1,715,019			$	971,150
Loans held-for-investment transferred to repossessed assets		$	64,290			$	93,155
Total interest payments made on deposits and other borrowings		$	61,448			$	92,883
Reclassification of mortgage loans originated for portfolio to mortgage loans available-for-sale for sale		$	383			$	109,496
Reclassification of mortgage loans originated available-for-sale then transferred to portfolio loans		$	7,119			$	—
Mortgage servicing rights resulting from sale or securitization of loans		$	50,700			$	48,267

The accompanying notes are an integral part of these Consolidated Financial Statements.

Flagstar Bancorp, Inc.

Note 1 — Nature of Business

     Flagstar Bancorp, Inc. (“Flagstar” or the “Company”), is the holding company for Flagstar Bank, FSB (the “Bank”), a federally chartered stock savings bank founded in 1987. Flagstar is the largest insured depository institution headquartered in Michigan, and is the largest publicly held savings bank headquartered in the Midwest. At March 31, 2011, Flagstar had $13.0 billion in total assets, $7.7 billion in deposits and $1.2 billion in stockholders’ equity.

     The Company offers a full array of banking and lending products and services to meet the needs of both consumers and businesses. Consumer products include deposit accounts, standard and jumbo home loans, home equity lines of credit, and personal loans, including auto, and boat loans. Business products include deposit and sweep accounts, telephone banking, term loans and lines of credit, government banking products and treasury management services such as remote deposit and merchant services.

     The Company sells or securitizes most of the mortgage loans that it originates and generally retains the right to service the mortgage loans that it sells. These mortgage-servicing rights (“MSRs”) are occasionally sold by the Company in transactions separate from the sale of the underlying mortgages. The Company may also invest in its loan originations to enhance the Company’s leverage ability and to receive the interest spread between earning assets and paying liabilities.

     The Bank is a member of the Federal Home Loan Bank (“FHLB”) of Indianapolis and is subject to regulation, examination and supervision by the Office of Thrift Supervision (“OTS”) and the Federal Deposit Insurance Corporation (“FDIC”). The Bank’s deposits are insured by the FDIC through the Deposit Insurance Fund (“DIF”).

Note 2 — Basis of Presentation and Accounting Policies

     The unaudited consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles for interim information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements. The accompanying interim financial statements are unaudited; however, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results of operations for the three month period ended March 31, 2011, are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. In addition, certain prior period amounts have been reclassified to conform to the current period presentation. For further information, reference should be made to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, which are available on the Company’s Investor Relations web page, at www.flagstar.com, and on the SEC website, at www.sec.gov.

Recently Adopted Accounting Standards

     On January 1, 2010, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 860, “Transfers and Servicing.” New authoritative accounting guidance under ASC Topic 860, “Transfers and Servicing,” amends prior accounting guidance to enhance reporting about transfers of financial assets, including securitizations, and where companies have continuing exposure to the risks related to transferred financial assets. The new authoritative accounting guidance eliminates the concept of a “qualifying special-purpose entity” and changes the requirements for derecognizing financial assets. The new authoritative accounting guidance also requires additional disclosures about all continuing involvements with transferred financial assets including information about gains and losses resulting from transfers during the period. The adoption of the new authoritative accounting guidance did not have an effect on the Company’s Consolidated Financial Statements.

     As of and for the year ended December 31, 2010, the Company adopted Accounting Standards Update (“ASU”) No. 2010-20, “Receivables (Topic 310): Disclosure about Credit Quality of Financing Receivables and Allowance For Credit Losses.” This guidance requires disclosures that facilitate the evaluation of the nature of credit risk inherent in its portfolio of financing receivables; how that risk is analyzed and assessed in determining the allowance for credit losses; and the changes and reasons for those changes in the allowance for credit losses. To achieve those objectives, disclosures on a disaggregated basis are provided on two defined levels: (1) portfolio segment; and (2) class of financing receivable. This guidance updates existing disclosure requirements and includes additional disclosure requirements relating to financing receivables. Short-term accounts receivable, receivables measured at fair value or lower of cost or fair value and debt securities are exempt from this guidance. For further information concerning credit quality, refer to Note 6 — Loans Held-for-Investment.

     As of and for the year ended December 31, 2010, the Company adopted the provisions of ASU No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. The guidance requires separate disclosures of significant transfers in and out of Level 1 and Level 2 fair value measurements and the reasons for the transfers and requires disclosure on purchases, sales, issuances and settlement activity on gross (rather than net) basis in the Level 3 reconciliation of fair value measurement for assets and liabilities measured at fair value on a recurring basis. In addition, the guidance clarifies that fair value measurement disclosures should be provided for each class of assets and liabilities and that disclosures of inputs and valuation techniques should be provided for both recurring and non-recurring Level 2 and Level 3 fair value measurements. For further information concerning the fair value measurements, refer to Note 3 — Fair Value Accounting.

Pending Accounting Pronouncements

     In April 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-02 “Receivables (Topic 310) — A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring.” The troubled debt restructuring (TDR) guidance clarifies whether loan modifications constitute TDRs, include factors and examples for creditors to consider in evaluating whether a restructuring results in a delay in payment that is insignificant, prohibit creditors from using the borrower’s effective rate test to evaluate whether a concession has been granted to the borrower, and add factors for creditors to use in determining whether a borrower is experiencing financial difficulties. A provision in the guidance also ends the FASB’s deferral of the additional disclosures about TDRs. The provisions of this guidance are effective for the first interim and annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. The Company is currently evaluating the impact of the guidance on the Company’s Consolidated Financial Statements and the Notes thereto.

     In April 2011, the FASB issued ASU No. 2011-03 “Transfers and Servicing (Topic 860) — Reconsideration of Effective Control for Repurchase Agreements.” Under the amended guidance, a transferor maintains effective control over transferred financial assets if there is an agreement that both entitles and obligates the transferor to repurchase the financial assets before maturity. In addition, the following requirements must be met: (a) the financial asset to be repurchased or redeemed are the same or substantially the same as those transferred, (b) the agreement is to repurchase or redeem the transferred financial asset before maturity at a fixed or determinable price, and (c) the agreement is entered into contemporaneously with, or in contemplation of the transfer. This guidance is effective prospectively for transactions, or modifications of existing transactions, that occur on or after the first interim or annual period beginning on or after December 15, 2011. The adoption of the guidance is not expected to have a material impact on the Company’s Consolidated Financial Statements or the Notes thereto.

Note 3 — Fair Value Accounting

     The Company utilizes fair value measurements to record certain assets and liabilities at fair value and to determine fair value disclosures.

Valuation Hierarchy

     The accounting guidance for fair value measurements and disclosures establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy favors the transparency of inputs used for the valuation of an asset or liability as of the measurement date and therefore favors use of Level 1 measurements if appropriate information is available, and otherwise Level 2, and finally Level 3 if Level 2 input is not available. The three levels are defined as follows:

•

Level 1 — Fair value is based upon quoted prices (unadjusted) for identical assets or liabilities in active markets in which the Company can participate.

•

Level 2 — Fair value is based upon quoted prices for similar (i.e., not identical) assets and liabilities in active markets, and other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

•

Level 3 — Fair value is based upon financial models using primarily unobservable inputs.

     A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input within the valuation hierarchy that is significant to the fair value measurement.

     The following is a description of the valuation methodologies used by the Company for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Assets

     Securities classified as trading. These securities are comprised of United States Department of the Treasury (“U.S. Treasury”) bonds and non-investment grade residual securities. The U.S. Treasury bonds trade in an active, open market with readily observable prices and are therefore classified within the Level 1 valuation hierarchy. The non-investment grade residual securities do not trade in an active, open market with readily observable prices and are therefore classified within the Level 3 valuation hierarchy. Under Level 3, the fair value of residual securities is determined by discounting estimated net future cash flows using expected prepayment rates and discount rates that approximate current market rates. Estimated net future cash flows include assumptions related to expected credit losses on these securities. The Company maintains a model that evaluates the default rate and severity of loss on the residual securities collateral, considering such factors as loss experience, delinquencies, loan-to-value ratios, borrower credit scores and property type. At March 31, 2011, the Company had no Level 3 securities classified as trading. See Note 8 — Private-label Securitization Activity, for further information. At March 31, 2011, the Company’s residual interests were deemed to have no value.

     Securities classified as available-for-sale. These securities are comprised of U.S. government sponsored agency mortgage-backed securities and collateralized mortgage obligations (“CMOs”). Where quoted prices for securities are available in an active market, those securities are classified within Level 1 of the valuation hierarchy. If such quoted market prices are not available, then fair values are estimated using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. Due to illiquidity in the markets, the Company determined the fair value of certain non-agency securities using internal valuation models and therefore classified them within the Level 3 valuation hierarchy as these models utilize significant inputs which are unobservable.

     Loans available-for-sale. At March 31, 2011 and December 31, 2010, the majority of the Company’s loans originated and classified as available-for-sale were reported at fair value and classified as Level 2. These loans had an aggregate fair value that exceeded the recorded amount. The Company generally estimated the fair value of mortgage loans based on quoted market prices for securities backed by similar types of loans. Where quoted market prices were available, such market prices were utilized as estimates for fair values. Otherwise, the fair values of loans were estimated by discounting estimated cash flows using management’s best estimate of market interest rates, prepayment speeds and loss assumptions for similar collateral. At March 31, 2011 and December 31, 2010, the Company had $124.7 million and $241.6 million, respectively, of loans which were originated prior to the fair value election and accounted for at lower of cost or market. The $111.1 million decrease was primarily due to the reclassification of $19.7 million of Ginnie Mae loans serviced for others and the sale of $80.3 million of non-performing residential first mortgage loans during the three months ended March 31, 2011. Loans as to which the Company has the unilateral right to repurchase from certain securitization transactions, but has not yet repurchased, are classified as available-for-sale and accounted for at historical cost, based on current unpaid principal balance.

     Loans held-for-investment. The Company generally does not record these loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans are considered impaired if it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement. Once a loan is identified as impaired, the fair value of the impaired loan is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value and liquidation value or discounted cash flows. Impaired loans do not require an allowance if the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At March 31, 2011 and December 31, 2010, substantially all of the impaired loans were evaluated based on the fair value of the collateral rather than on discounted cash flows. If the fair value of collateral is used to establish an allowance, the underlying impaired loan must be assigned a classification in the fair value hierarchy. To the extent the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the impaired loan as a non-recurring Level 2 valuation.

     Repossessed assets. Loans on which the underlying collateral has been repossessed are adjusted to fair value less costs to sell upon transfer to repossessed assets. Subsequently, repossessed assets are carried at the lower of carrying value or fair value, less anticipated marketing and selling costs. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the repossessed asset as a non-recurring Level 2 valuation.

     Residential mortgage servicing rights. The current market for residential mortgage servicing rights is not sufficiently liquid to provide participants with quoted market prices. Therefore, the Company uses an option-adjusted spread valuation approach to determine the fair value of residential MSRs. This approach consists of projecting servicing cash flows under multiple interest rate scenarios and discounting these cash flows using risk-adjusted discount rates. The key assumptions used in the valuation of residential MSRs include mortgage prepayment speeds, discount rates and delinquency rates with related servicing costs. Management periodically obtains third-party valuations of the residential MSR portfolio to assess the

reasonableness of the fair value calculated by the internal valuation model. Due to the nature of the valuation inputs, residential MSRs are classified within Level 3 of the valuation hierarchy. See Note 9 — Mortgage Servicing Rights, for the key assumptions used in the residential MSR valuation process.

     Derivative financial instruments. Certain classes of derivative contracts are listed on an exchange and are actively traded, and they are therefore classified within Level 1 of the valuation hierarchy. These include U.S. Treasury futures, U.S. Treasury options and interest rate swaps. The Company’s forward loan sale commitments may be valued based on quoted prices for similar assets in an active market with inputs that are observable and are classified within Level 2 of the valuation hierarchy. Rate lock commitments are valued using internal models with significant unobservable market parameters and therefore are classified within Level 3 of the valuation hierarchy.

Liabilities

     Warrants. Warrant liabilities are valued using a binomial lattice model and are classified within Level 2 of the valuation hierarchy. Significant assumptions include expected volatility, a risk free rate and an expected life.

Assets and liabilities measured at fair value on a recurring basis

     The following tables present the financial instruments carried at fair value as of March 31, 2011 and December 31, 2010, by caption on the Consolidated Statement of Financial Condition and by the valuation hierarchy (as described above):

														Total Carrying
March 31, 2011		Level 1				Level 2				Level 3				Value
(Dollars in thousands)
Securities classified as trading:
U.S. Treasury bonds		$	160,650			$	—			$	—			$	160,650
Securities classified as available-for-sale:
Non-agencies			—				—				444,957				444,957
U.S. government sponsored agencies			7,411				—				—				7,411
Loans available-for-sale:
Residential first mortgage loans			—				1,484,824				—				1,484,824
Loans held-for-investment:
Residential first mortgage loans			—				22,198				—				22,198
Residential mortgage servicing rights			—				—				635,122				635,122
Derivative assets: (1)
U.S. Treasury futures			8,208				—				—				8,208
Rate lock commitments			—				—				13,780				13,780
Agency forwards			5,633				—				—				5,633
Total derivative assets			13,841				—				13,780				27,621
Total assets at fair value		$	181,902			$	1,507,022			$	1,093,859			$	2,782,783
Derivative liabilities: (2)
Forward agency and loan sales			—				(4,541	)			—				(4,541	)
Warrant liabilities (2)			—				(8,474	)			—				(8,474	)
Total liabilities at fair value		$	—			$	(13,015	)		$	—			$	(13,015	)

														Total Carrying
December 31, 2010		Level 1				Level 2				Level 3				Value
		(Dollars in thousands)
Securities classified as trading:
U.S. Treasury bonds		$	160,775			$	—			$	—			$	160,775
Securities classified as available-for-sale:
Non-agencies			—				—				467,488				467,488
U.S. government sponsored agencies			7,737				—				—				7,737
Loans available-for-sale:
Residential first mortgage loans			—				2,343,638				—				2,343,638
Loans held-for-investment:
Residential first mortgage loans			—				19,011				—				19,011
Residential mortgage servicing rights			—				—				580,299				580,299
Derivative assets: (1)
Forward agency and loan sales			—				35,820				—				35,820
Rate lock commitments			—				—				14,396				14,396
Agency forwards			4,088				—				—				4,088
Total derivative assets			4,088				35,820				14,396				54,304
Total assets at fair value			172,600				2,398,469				1,062,183				3,633,252
Derivative liabilities: (2)
U.S. Treasury futures			(13,176	)			—				—				(13,176	)
Warrant liabilities (2)			—				(9,300	)			—				(9,300	)
Total liabilities at fair value			(13,176	)			(9,300	)			—				(22,476	)
Net assets and liabilities at fair value		$	159,424			$	2,389,169			$	1,062,183			$	3,610,776

     There were no transfers of assets or liabilities recorded at fair value on a recurring basis into or out of Level 3 fair value measurements during the three month periods ended March 31, 2011 and 2010.

Changes in Level 3 fair value measurements

     A determination to classify a financial instrument within Level 3 of the valuation hierarchy is based upon the significance of the unobservable factors to the overall fair value measurement. However, Level 3 financial instruments typically include, in addition to the unobservable or Level 3 components, observable components (that is, components that are actively quoted and can be validated to external sources). Accordingly, the gains and losses in the table below include changes in fair value due in part to observable factors that are included within the valuation methodology. Also, the Company manages the risk associated with the observable components of Level 3 financial instruments using securities and derivative positions that are classified within Level 1 or Level 2 of the valuation hierarchy; these Level 1 and Level 2 risk management instruments are not included below, and therefore the gains and losses in the tables do not reflect the effect of the Company’s risk management activities related to such Level 3 instruments.

Fair value measurements using significant unobservable inputs

     The tables below include a roll forward of the Consolidated Statement of Financial Condition amounts for the three months ended March 31, 2011 and 2010 (including the change in fair value) for financial instruments classified by the Company within Level 3 of the valuation hierarchy:

						Total
						Realized/
		Balance at				Unrealized												Transfers in
For the Three Months Ended		Beginning				Gains /												and/or Out of				Balance at				Held at End
March 31, 2011		of Period				(Losses)				Purchases				Settlements				Level 3				End of Period				of Period (6)
		(Dollars in thousands)
Securities classified as available-for-sale: (2)(3)(4)
Non-agencies		$	467,488			$	7,722			$	—			$	(30,253	)		$	—			$	444,957			$	7,722
Residential mortgage servicing rights			580,299				4,123				50,700				—				—				635,122				—
Derivative financial instruments:
Rate lock commitments			14,396				(6,201	)			48,844				(43,259	)			—				13,780				—
Totals		$	1,062,183			$	5,644			$	99,544			$	(73,512	)		$	—			$	1,093,859			$	7,722
For the Three Months Ended March 31, 2010
Securities classified as trading:
Non-investment grade residual interests (1)		$	2,057			$	(1,771	)		$	—			$	—			$	—			$	286			$	—
Securities classified as available-for-sale: (2)(3)(4)
Non-agencies			538,376				7,914				—				(22,389	)			—				523,901				11,200
Residential mortgage servicing rights			649,133				(156,600	)			48,267				—				—				540,800				—
Derivative financial instruments:
Rate lock commitments (5)			10,061				—				3,024				—				—				13,085				—
Totals		$	1,199,627			$	(150,457	)		$	51,291			$	(22,389	)		$	—			$	1,078,072			$	11,200

     The Company also has assets that under certain conditions are subject to measurement at fair value on a non-recurring basis. These assets are measured at the lower of cost or market and had a fair value below cost at the end of the period as summarized below:

Assets Measured at Fair Value on a Non-recurring Basis

		Total				Level 1				Level 2				Level 3
		(Dollars in thousands)
March 31, 2011
Loans held-for-investment: (1)
Residential first mortgage loans		$	31,952			$	—			$	31,952			$	—
Commercial real estate loans			184,463				—				184,463				—
Repossessed assets(2)			146,372				—				146,372				—
Totals		$	362,787			$	—			$	362,787			$	—
December 31, 2010
Loans held-for-investment: (1)
Residential first mortgage loans		$	32,025			$	—			$	32,025			$	—
Commercial real estate loans			218,091				—				218,091				—
Repossessed assets (2)			151,085				—				151,085				—
Totals		$	401,201			$	—			$	401,201			$	—

Fair Value of Financial Instruments

     The accounting guidance for financial instruments requires disclosures of the estimated fair value of certain financial instruments and the methods and significant assumptions used to estimate their fair values. Certain financial instruments and all non-financial instruments are excluded from the scope of this guidance. Accordingly, the fair value disclosures required by this guidance are only indicative of the value of individual financial instruments as of the dates indicated and should not be considered an indication of the fair value of the Company.

     The following table presents the carrying amount and estimated fair value of certain financial instruments:

		March 31, 2011								December 31, 2010
		Carrying				Fair				Carrying				Fair
		Value				Value				Value				Value
		(Dollars in thousands)
Financial Instruments
Assets:
Cash and cash equivalents		$	1,715,019			$	1,715,019			$	953,534			$	953,534
Securities classified as trading			160,650				160,650				160,775				160,775
Securities classified as available-for-sale			452,368				452,368				475,225				475,225
Loans available-for-sale			1,609,501				1,606,810				2,585,200				2,513,239
Loans held-for-investment, net			5,493,675				5,434,136				6,031,483				5,976,623
Repossessed assets			146,372				146,372				151,085				151,085
FHLB stock			337,190				337,190				337,190				337,190
Mortgage servicing rights			635,122				635,122				580,299				580,299
Liabilities:
Retail deposits:
Demand deposits and savings accounts			(2,304,127	)			(2,191,198	)			(2,153,438	)			(2,075,898	)
Certificates of deposit			(3,189,138	)			(3,236,524	)			(3,230,972	)			(3,292,983	)
Government accounts			(753,561	)			(722,870	)			(663,976	)			(664,572	)
National certificates of deposit			(812,463	)			(831,949	)			(883,270	)			(906,699	)
Company controlled deposits			(689,621	)			(671,043	)			(1,066,443	)			(1,048,432	)
FHLB advances			(3,400,000	)			(3,546,154	)			(3,725,083	)			(3,901,385	)
Long-term debt			(248,610	)			(103,982	)			(248,610	)			(100,534	)
Warrant liabilities			(8,474	)			(8,474	)			(9,300	)			(9,300	)
Derivative Financial Instruments:
Forward delivery contracts			(4,541	)			(4,541	)			35,820				35,820
Commitments to extend credit			13,780				13,780				14,396				14,396
U.S. Treasury and agency futures/forwards			13,841				13,841				(9,088	)			(9,088	)

     The methods and assumptions that were used to estimate the fair value of financial assets and financial liabilities that are measured at fair value on a recurring or non-recurring basis are discussed above. The following methods and assumptions were used to estimate the fair value of other financial instruments for which it is practicable to estimate that value:

     Cash and cash equivalents. Due to their short-term nature, the carrying amount of cash and cash equivalents approximates fair value.

     Loans held-for-investment. The fair value of loans is estimated by using internally developed discounted cash flow models using market interest rate inputs as well as management’s best estimate of spreads for similar collateral.

     FHLB stock. No secondary market exists for FHLB stock. The stock is bought and sold at par by the FHLB. Management believes that the recorded value is the fair value.

     Deposit accounts. The fair value of demand deposits and savings accounts approximates the carrying amount. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for certificates of deposit with similar remaining maturities.

     FHLB advances. Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate the fair value of the existing debt.

     Long-term debt. The fair value of the long-term debt is estimated based on a discounted cash flow model that incorporates the Company’s current borrowing rates for similar types of borrowing arrangements.

Note 4 — Investment Securities

     As of March 31, 2011 and December 31, 2010, investment securities were comprised of the following:

						Gross				Gross
		Amortized				Unrealized				Unrealized
		Cost				Gains				Losses				Fair Value
		(Dollars in thousands)
March 31, 2011
Securities classified as trading:
U.S. Treasury bonds		$	160,238			$	412			$	—			$	160,650
Securities classified as available-for-sale:
Non-agencies		$	481,217			$	755			$	(37,015	)		$	444,957
U.S. government sponsored agencies			6,899				512				—				7,411
Total securities classified as available-for-sale		$	488,116			$	1,267			$	(37,015	)		$	452,368
December 31, 2010
Securities classified as trading:
U.S. Treasury bonds		$	160,289			$	486			$	—			$	160,775
Securities classified as available-for-sale:
Non-agencies		$	510,167			$	1,979			$	(44,658	)		$	467,488
U.S. government sponsored agencies			7,211				526				—				7,737
Total securities classified as available-for-sale		$	517,378			$	2,505			$	(44,658	)		$	475,225

Trading

     Securities classified as trading are comprised of AAA-rated U.S. Treasury bonds and non-investment grade residual interests from private-label securitizations. U.S. Treasury bonds held in trading are distinguished from available-for-sale based upon the intent of the Company to use them as an economic offset against changes in the valuation of the MSR portfolio; however, these securities do not qualify as an accounting hedge as defined in current accounting guidance for derivatives and hedges.

     For U.S. Treasury bonds held, the Company recorded a loss of $0.1 million during the three month period ended March 31, 2011, all of which was an unrealized loss on U.S. Treasury bonds held at March 31, 2011. For the three month period ended March 31, 2010, the Company recorded a loss of $3.3 million, $3.8 million of which was unrealized loss on U.S. Treasury bonds held at March 31, 2010.

     The Company had no non-investment grade residual interests resulting from private label securitizations at March 31, 2011 or December 31, 2010, as compared to $0.3 million at March 31, 2010. The fair value of non-investment grade residual securities classified as trading decreased as a result of the increase in the actual and expected losses in the second mortgages and HELOCs that underlie these assets.

     The fair value of residual interests is determined by discounting estimated net future cash flows using discount rates that approximate current market rates and expected prepayment rates. Estimated net future cash flows include assumptions related to expected credit losses on these securities. The Company maintains a model that evaluates the default rate and severity of loss on the residual interests’ collateral, considering such factors as loss experience, delinquencies, loan-to-value ratio, borrower credit scores and property type.

Available-for-Sale

     Securities available-for-sale are carried at fair value, with unrealized gains and losses reported as a component of other comprehensive loss to the extent they are temporary in nature or “other-than-temporary impairments” (“OTTI”) as to non-credit related issues. If unrealized losses are, at any time, deemed to have arisen from OTTI, the credit related portion is reported as an expense for that period. At March 31, 2011 and December 31, 2010, the Company had $452.4 million and $475.2 million, respectively, in securities classified as available-for-sale which were comprised of U.S. government sponsored agency and non-agency collateralized mortgage obligations.

     The following table summarizes by duration the unrealized loss positions, at March 31, 2011, on securities classified as available-for-sale:

Unrealized Loss Position with

Unrealized Loss Position with

Duration 12 Months and Over

Duration Under 12 Months

Fair

Number of

Unrealized

Fair

Number of

Unrealized

Type of Security

Value

Securities

Loss

Value

Securities

Loss

(Dollars in thousands)

Collateralized mortgage obligations

$

413,156

11

$

(37,015

)

$

—

—

$

—

     The unrealized losses on securities available-for-sale amounted to $37.0 million and related solely to non-agency CMOs that are interests in investment vehicles backed by residential first mortgage loans.

     An investment impairment analysis is triggered when the estimated market value is less than amortized cost for an extended period of time, generally six months. Before an analysis is performed, the Company also reviews the general market conditions for the specific type of underlying collateral for each security; in this case, the mortgage market in general has suffered from significant losses in value. With the assistance of third party experts as deemed necessary, the Company models the expected cash flows of the underlying mortgage assets using historical factors such as default rates, current delinquency rates and estimated factors such as prepayment speed, default speed and severity speed. Next, the cash flows are modeled through the appropriate waterfall for each CMO tranche owned; the level of credit support provided by subordinated tranches is included in the waterfall analysis. The resulting cash flow of principal and interest is then utilized by management to determine the amount of credit losses by security.

     The credit losses on the portfolio reflect the economic conditions present in the U.S. over the course of the last several years. This includes high mortgage defaults, declines in collateral values and changes in homeowner behavior, such as intentionally defaulting on a note due to a home value worth less than the outstanding debt on the home (so-called “strategic defaults.”)

     During the three month period ended March 31, 2011, there were no additional OTTI due to credit losses on the CMOs. During the three month period ended March 31, 2010, additional OTTI due to credit losses on six CMOs with existing OTTI credit losses totaled $3.3 million while no additional OTTI due to credit loss was recognized on the CMOs that did not already have such losses. All OTTI due to credit losses were recognized in current operations.

     At March 31, 2011, the Company had total OTTI of $35.9 million on 11 CMOs in the available-for-sale portfolio with no net gain recognized in other comprehensive income. At December 31, 2010, the Company had total OTTI of $43.6 million on 10 CMOs in the available-for-sale portfolio with $48.6 million in total net gain recognized in other comprehensive income. The impairment losses arising from credit related matters were reported in the Consolidated Statements of Operations. The following table shows the activity for OTTI credit loss:

		For the Three Months Ended
		March 31,
		2011				2010
		(Dollars in thousands)
Balance, beginning of period		$	(40,263	)		$	(35,272	)
Additions on securities with no prior OTTI			—				—
Net change on securities with previous OTTI recognized			4,312				(3,286	)
Balance, end of period,		$	(35,951	)		$	(38,558	)

     Gains (losses) on the sale of U.S. government sponsored agency mortgage-backed securities available-for-sale that are recently created with underlying mortgage products originated by the Bank are reported within net gain on loan sale. Securities in this category have typically remained in the portfolio less than 90 days before sale. During the three months ended March 31, 2011 and 2010, there were no sales of U.S. government sponsored agency securities with underlying mortgage products recently originated by the Bank.

     Gain (loss) on sales for all other available-for-sale securities types are reported in net gain on sale of available-for-sales securities. During the three months ended March 31, 2011, the Company did not have any sales non-agency securities compared to the same period ended March 31, 2010 in which the Company sold $54.6 million in non-agency securities available-for-sale resulting in a net gain on sale of $2.2 million.

     As of March 31, 2011 and December 31, 2010, the aggregate amount of available-for-sale securities from each of the following non-agency issuers was greater than 10 percent of the Company’s stockholders’ equity.

		March 31, 2011								December 31, 2010
		Amortized				Fair Market				Amortized				Fair Market
		Cost				Value				Cost				Value
		(Dollars in thousands)
Name of Issuer
Countrywide Home Loans		$	162,674			$	152,856			$	173,860			$	159,910
Flagstar Home Equity Loan Trust 2006-1			142,139				129,956				149,717				136,707
Total		$	304,813			$	282,812			$	323,577			$	296,617

Note 5 — Loans Available-for-Sale

     Total loans available-for-sale were $1.6 billion and $2.6 billion at March 31, 2011 and December 31, 2010, respectively, and were comprised primarily of residential first mortgage loans. During the three months ended March 31, 2011, the Company sold $80.3 million of non-performing residential first mortgage loans in the available-for-sale category at a sale price which approximated carrying value.

     At March 31, 2011 and December 31, 2010, $1.5 billion and $2.3 billion of loans available-for-sale were recorded at fair value, respectively. The Company estimates the fair value of mortgage loans based on quoted market prices for securities backed by similar types of loans for which quoted market prices were available. Otherwise, the fair values of loans were estimated by discounting estimated cash flows using management’s best estimate of market interest rates for similar collateral.

     In addition, for certain loans sold to Ginnie Mae, the Company has the unilateral option to repurchase certain loans securitized in Ginnie Mae pools, if the loans meet certain delinquency criteria. As a result of this unilateral option, once the delinquency criteria have been met, and before the repurchase option has been exercised, the Company must treat the loans as having been repurchased and recognize the assets as loans available-for-sale and also recognize a corresponding liability for a similar amount. If the loans are actually repurchased, the Company eliminates the corresponding liability and reclassifies the loans as government insured repurchased assets (See Note 10). At March 31, 2011 and December 31, 2010, the amount of such loans which the Company had not yet repurchased but had the unilateral right to repurchase totaled $92.3 million and $112.0 million, respectively, and were classified as loans available-for-sale.

Note 6 — Loans Held-for-Investment

     Loans held-for-investment are summarized as follows:

		March 31, 2011				December 31, 2010
		(Dollars in thousands)
Consumer loans:
Residential first mortgage		$	3,751,772			$	3,784,700
Second mortgage			165,161				174,789
Construction			3,246				8,012
Warehouse lending			303,785				720,770
HELOC			255,012				271,326
Other			81,037				86,710
Total consumer loans		$	4,560,013			$	5,046,307
Commercial loans:
Commercial real estate			1,170,198				1,250,301
Commercial and industrial			9,326				8,875
Commercial lease financing			25,138				—
Total commercial loans		$	1,204,662			$	1,259,176
Total consumer and commercial loans held-for-investment		$	5,764,675			$	6,305,483
Less allowance for loan losses			(271,000	)			(274,000	)
Loans held-for-investment, net		$	5,493,675			$	6,031,483

     For the three month period ended March 31, 2011 and 2010, the Company transferred $7.1 million and $60.6 million, respectively, in loans available-for-sale to loans held-for-investment. The loans transferred were carried at fair value, and will continue to be reported at fair value while classified as held-for-investment. During the year ended December 31, 2010, the Company transferred $578.2 million of non-performing residential first mortgage loans from loans held-for-investment to loans available-for-sale, as a result of the $474.0 million sale of non-performing residential first mortgage loans and the transfer of $104.2 million in similar loans to available-for-sale.

     The Company’s commercial leasing activities consist primarily of equipment leases. Generally, lessees are responsible for all maintenance, taxes, and insurance on leased properties. The following table lists the components of the net investment in financing leases.

		March 31, 2011				December 31, 2010
		(Dollars in thousands)
Total minimum lease payment to be received		$	25,616			$	—
Estimated residual values of lease properties			3,415				—
Less: unearned income			(3,893	)			—
Net investment in commercial financing leases		$	25,138			$	—

     The following outlines the Company’s minimum lease receivables for direct financing leases for the five succeeding years and thereafter. The Company had no commercial financing leases at December 31, 2010.

		March 31,
		2011
		(Dollars in thousands)
2011		$	3,843
2012			5,123
2013			5,123
2014			5,123
2015			5,123
Thereafter			1,281
Total		$	25,616

     The Company adopted the provision of ASU No. 2010-20, “Receivables (Topic 310): Disclosure about Credit Quality of Financing Receivables and Allowance For Credit Losses” for the year ended December 31, 2010. This guidance requires an entity to provide disclosures that facilitate the evaluation of the nature of credit risk inherent in its portfolio of financing receivables; how that risk is analyzed and assessed in determining the allowance for credit losses; and the changes and reasons for those changes in the allowance for credit losses. To achieve those objectives, disclosures on a disaggregated basis must be provided on two defined levels: (1) portfolio segment; and (2) class of financing receivable. This guidance makes changes to existing disclosure requirements and includes additional disclosure requirements relating to financing receivables. Short-term accounts receivable, receivables measured at fair value or lower of cost or fair value and debt securities are exempt from this guidance.

     The allowance for loan losses represents management’s estimate of probable losses in our loans held-for-investment portfolio as of the date of the Consolidated Financial Statements. The allowance provides for probable losses that have been identified with specific customer relationships and for probable losses believed to be inherent in the loan portfolio but that have not been specifically identified. Consistent with such disclosure requirements, set forth below is the activity in the allowance for loan losses for the three-month and year-end periods noted:

										For the Year
		For the Three Months Ended								Ended
		March 31,				March 31,				December 31,
		2011				2010				2010
		(Dollars in thousands)
Beginning balance		$	274,000			$	524,000			$	524,000
Provision for loan losses			28,309				63,559				426,353
Charge-offs
Consumer loans:
Residential first mortgage			(2,482	)			(29,684	)			(473,484	)
Second mortgage			(5,778	)			(6,695	)			(27,976	)
Construction			—				(21	)			(581	)
Warehouse lending			—				(471	)			(2,154	)
HELOC			(5,063	)			(4,877	)			(21,618	)
Other			(839	)			(634	)			(2,620	)
Total consumer loans			(14,162	)			(42,382	)			(528,433	)
Commercial loans:
Commercial real estate			(19,289	)			(8,334	)			(152,369	)
Commercial and industrial			(48	)			(147	)			(1,832	)
Total commercial loans			(19,337	)			(8,481	)			(154,201	)
Other			(620	)			(697	)			(2,840	)
Total charge-offs		$	(34,119	)		$	(51,560	)		$	(685,474	)
Recoveries
Consumer loans:
Residential first mortgage		$	336			$	664			$	2,506
Second mortgage			866				265				1,806
Construction			1				1				7
Warehouse lending			5				—				516
HELOC			486				354				1,531
Other			239				301				856
Total consumer loans			1,933				1,585				7,222
Commercial loans:
Commercial real estate			729				373				1,121
Commercial and industrial			—				—				19
Total commercial loans			729				373				1,140
Other			148				43				759
Total recoveries		$	2,810			$	2,001			$	9,121
Charge-offs, net of recoveries		$	(31,309	)		$	(49,559	)		$	(676,353	)
Ending balance		$	271,000			$	538,000			$	274,000
Net charge-off ratio			2.14	%			2.65	%			9.34	%