Loan Sale and Servicing Activities and Variable Interest Entities

9 Months Ended

Sep. 30, 2017

Loan Sale and Servicing Activities and Variable Interest Entities [Abstract]

Loan Sale and Servicing Activities and Variable Interest Entities

LOAN SALE AND SERVICING ACTIVITIES AND VARIABLE INTEREST ENTITIES

Loan Sale and Servicing Activities

As more fully described in Note 2 Loan Sale and Servicing Activities and Variable Interest Entities in our 2016 Form 10-K, we have transferred residential and commercial mortgage loans in securitization or sales transactions in which we have continuing involvement. Our continuing involvement generally consists of servicing, repurchasing previously transferred loans under certain conditions and loss share arrangements, and, in limited circumstances, holding of mortgage-backed securities issued by the securitization special purpose entities (SPEs).

We earn servicing and other ancillary fees for our role as servicer and, depending on the contractual terms of the servicing arrangement, we can be terminated as servicer with or without cause. At the consummation date of each type of loan transfer where we retain the servicing, we recognize a servicing right at fair value. See Note 7 Goodwill and Mortgage Servicing Rights for information on our servicing rights, including the carrying value of servicing assets.

The following table provides cash flows associated with our loan sale and servicing activities.

Table 31: Cash Flows Associated with Loan Sale and Servicing Activities



In millions	Residential Mortgages			Commercial Mortgages (a)
CASH FLOWS – Three months ended September 30, 2017
Sales of loans (b)	$	1,468			$	1,280
Repurchases of previously transferred loans (c)	$	103
Servicing fees (d)	$	95			$	32
Servicing advances recovered/(funded), net	$	(4	)		$	(1	)
Cash flows on mortgage-backed securities held (e)	$	372			$	13
CASH FLOWS – Three months ended September 30, 2016
Sales of loans (b)	$	1,950			$	1,342
Repurchases of previously transferred loans (c)	$	133
Servicing fees (d)	$	95			$	31
Servicing advances recovered/(funded), net	$	13			$	(7	)
Cash flows on mortgage-backed securities held (e)	$	466			$	31
CASH FLOWS – Nine months ended September 30, 2017
Sales of loans (b)	$	4,385			$	3,639
Repurchases of previously transferred loans (c)	$	331
Servicing fees (d)	$	281			$	95
Servicing advances recovered/(funded), net	$	80			$	25
Cash flows on mortgage-backed securities held (e)	$	1,066			$	196
CASH FLOWS – Nine months ended September 30, 2016
Sales of loans (b)	$	4,796			$	2,796
Repurchases of previously transferred loans (c)	$	396
Servicing fees (d)	$	281			$	93
Servicing advances recovered/(funded), net	$	89
Cash flows on mortgage-backed securities held (e)	$	1,235			$	228


(a)	Represents cash flow information associated with both commercial mortgage loan transfer and servicing activities.


(b)	Gains/losses recognized on sales of loans were insignificant for the periods presented.


(c)	Includes residential mortgage government insured or guaranteed loans eligible for repurchase through the exercise of our removal of account provision option, and loans repurchased due to alleged breaches of origination covenants or representations and warranties made to purchasers.


(d)	Includes contractually specified servicing fees, late charges and ancillary fees.

(e)

Represents cash flows on securities we hold issued by a securitization SPE in which we transferred to and/or services loans. The carrying values of such securities held were $7.6 billion in residential mortgage-backed securities and $.7 billion in commercial mortgage-backed securities at September 30, 2017 and $6.7 billion in residential mortgage-backed securities and $1.0 billion in commercial mortgage-backed securities at September 30, 2016. Additionally, at December 31, 2016, the carrying values of such securities held were $6.9 billion in residential mortgage-backed securities and $.9 billion in commercial mortgage-backed securities.

Table 32 presents information about the principal balances of transferred loans that we service and are not recorded on our Consolidated Balance Sheet. We would only experience a loss on these transferred loans if we were required to repurchase a loan due to a breach in representations and warranties or a loss sharing arrangement associated with our continuing involvement with these loans.

Table 32: Principal Balance, Delinquent Loans and Net Charge-offs Related to Serviced Loans For Others



In millions	Residential Mortgages		Commercial Mortgages (a)
September 30, 2017
Total principal balance	$	59,580	$	47,376
Delinquent loans (b)	$	909	$	566
December 31, 2016
Total principal balance	$	66,081	$	45,855
Delinquent loans (b)	$	1,422	$	941
Three months ended September 30, 2017
Net charge-offs (c)	$	13	$	228
Three months ended September 30, 2016
Net charge-offs (c)	$	24	$	168
Nine months ended September 30, 2017
Net charge-offs (c)	$	62	$	639
Nine months ended September 30, 2016
Net charge-offs (c)	$	78	$	1,237


(a)	Represents information at the securitization level in which we have sold loans and we are the servicer for the securitization.


(b)	Serviced delinquent loans are 90 days or more past due or are in process of foreclosure.

(c)

Net charge-offs for Residential mortgages represent credit losses less recoveries distributed and as reported to investors during the period. Net charge-offs for Commercial mortgages represent credit losses less recoveries distributed and as reported by the trustee for commercial mortgage backed securitizations. Realized losses for Agency securitizations are not reflected as we do not manage the underlying real estate upon foreclosure and, as such, do not have access to loss information.

Variable Interest Entities (VIEs)

As discussed in Note 2 Loan Sale and Servicing Activities and Variable Interest Entities in our 2016 Form 10-K, we are involved with various entities in the normal course of business that are deemed to be VIEs.

The following table provides a summary of non-consolidated VIEs with which we have significant continuing involvement but are not the primary beneficiary. We do not consider our continuing involvement to be significant when it relates to a VIE where we only invest in securities issued by the VIE and were not involved in the design of the VIE or where no transfers have occurred between us and the VIE. We have excluded certain transactions with non-consolidated VIEs from the balances presented in Table 33 where we have determined that our continuing involvement is not significant. In addition, where we only have lending arrangements in the normal course of business with entities that could be VIEs, we have excluded these transactions with non-consolidated entities from the balances presented in Table 33. These loans are included as part of the asset quality disclosures that we make in Note 3 Asset Quality.

Table 33: Non-Consolidated VIEs



In millions	PNC Risk of Loss (a)		Carrying Value of Assets Owned by PNC			Carrying Value of Liabilities Owned by PNC
September 30, 2017
Mortgage-Backed Securitizations (b)	$	8,593	$	8,593	(c)
Tax Credit Investments and Other	3,079		3,007		(d)	$	825	(e)
Total	$	11,672	$	11,600		$	825
December 31, 2016
Mortgage-Backed Securitizations (b)	$	8,003	$	8,003	(c)
Tax Credit Investments and Other	3,083		3,043		(d)	$	823	(e)
Total	$	11,086	$	11,046		$	823


(a)	This represents loans, investments and other assets related to non-consolidated VIEs, net of collateral (if applicable).


(b)	Amounts reflect involvement with securitization SPEs where we transferred to and/or service loans for an SPE and we hold securities issued by that SPE. Values disclosed in the PNC Risk of Loss column represent our maximum exposure to loss for those securities’ holdings.


(c)	Included in Investment securities, Mortgage servicing rights and Other assets on our Consolidated Balance Sheet.


(d)	Included in Investment securities, Loans, Equity investments and Other assets on our Consolidated Balance Sheet.


(e)	Included in Deposits and Other liabilities on our Consolidated Balance Sheet.

We make certain equity investments in various tax credit limited partnerships or limited liability companies (LLCs). The purpose of these investments is to achieve a satisfactory return on capital and to assist us in achieving goals associated with the Community Reinvestment Act. During the nine months ended September 30, 2017, we recognized $.2 billion of amortization, $.2 billion of tax credits, and $.1 billion of other tax benefits associated with qualified investments in low income housing tax credits within Income taxes. The amounts for the third quarter of 2017 were $58 million, $60 million and $21 million, respectively.