Loans Held for Sale

Loans held for sale consisted of the following:



	March 31, 2014		December 31, 2013
	(in millions)
Commercial loans	$	864	$	76
Consumer loans:
Residential mortgages	42		91
Other consumer	63		63
Total consumer	105		154
Total loans held for sale	$	969	$	230

We originate commercial loans in connection with our participation in a number of syndicated credit facilities. Syndicated loans that are originated with the intent of selling them to unaffiliated third parties are classified as commercial loans held for sale. The fair value of commercial loans held for sale under this program was $753 million and $58 million at March 31, 2014 and December 31, 2013, respectively. We have elected to designate all commercial syndicated loans classified as held for sale at fair value under the fair value option. See Note 10, "Fair Value Option," for additional information.

Commercial loans held for sale also includes $54 million of global banking loans at March 31, 2014, which were transferred to held for sale during the first quarter of 2014, as well as commercial real estate loans totaling $57 million and $18 million at March 31, 2014 and December 31, 2013, respectively.

We sell all our agency eligible loan originations servicing released directly to PHH Mortgage. Also included in residential mortgage loans held for sale are subprime residential mortgage loans with a fair value of $27 million and $46 million at March 31, 2014 and December 31, 2013, respectively, which were acquired from unaffiliated third parties and from HSBC Finance Corporation ("HSBC Finance") with the intent of securitizing or selling the loans to third parties. Gains and losses from the sale of residential mortgage loans are reflected as a component of residential mortgage banking revenue in the accompanying consolidated statement of income.

Loans held for sale are subject to market risk, liquidity risk and interest rate risk, in that their value will fluctuate as a result of changes in market conditions, as well as the credit environment. PHH Mortgage is obligated to purchase agency eligible loans from us as of the earlier of when the customer locks the mortgage loan pricing or when the mortgage loan application is approved. As such, we retain none of the risk of market changes in mortgage rates for these loans.

Other consumer loans held for sale includes certain student loans which we no longer originate.

Excluding the commercial loans designated under fair value option discussed above, loans held for sale are recorded at the lower of amortized cost or fair value. While the initial carrying amount of loans held for sale continued to exceed fair value at March 31, 2014, we experienced a decrease in the valuation allowance for consumer loans held for sale during the three months ended March 31, 2014 due primarily to loan sales. The valuation allowance on consumer loans held for sale was $59 million and $77 million at March 31, 2014 and December 31, 2013, respectively.