Loans Held for Sale

Loans held for sale consisted of the following:



At December 31,	2014		2013
	(in millions)
Commercial loans	$	528	$	76
Consumer loans:
Residential mortgages	18		91
Other consumer	66		63
Total consumer	84		154
Total loans held for sale	$	612	$	230

We originate commercial loans in connection with our participation in a number of syndicated credit facilities with the intent of selling the loans to unaffiliated third parties and, beginning in 2014, we purchase leveraged commercial loans from the secondary market and hold the loans as hedges against our exposure to certain total return swaps. These commercial syndicated and leveraged loans are classified as commercial loans held for sale and are recorded at fair value as we have elected to designate these loans under the fair value option. The fair value of commercial loans held for sale under these programs was $152 million and $58 million at December 31, 2014 and 2013, respectively. See Note 16, "Fair Value Option," for additional information.

Commercial loans held for sale also includes $276 million of global banking loans at December 31, 2014, which were transferred to held for sale during 2014, as well as commercial real estate loans totaling $100 million and $18 million at December 31, 2014 and 2013, respectively.

We sell all our agency eligible loan originations servicing released directly to PHH Mortgage Corporation ("PHH Mortgage"). 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. Also included in residential mortgage loans held for sale are subprime residential mortgage loans with a fair value of $4 million and $46 million at December 31, 2014 and 2013, respectively, which were acquired from unaffiliated third parties and from HSBC Finance with the intent of securitizing or selling the loans to third parties.

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 consumer loans held for sale continued to exceed fair value at December 31, 2014, we experienced a decrease in the valuation allowance for consumer loans held for sale during year ended December 31, 2014 due primarily to subprime residential mortgage loan sales. The valuation allowance on consumer loans held for sale was $15 million and $77 million at December 31, 2014 and 2013, respectively. The valuation allowance on commercial loans held for sale was $11 million at December 31, 2014 compared with no allowance at December 31, 2013.