Loans Held for Sale

Loans held for sale consisted of the following:



	September 30, 2015		December 31, 2014
	(in millions)
Commercial loans	$	269	$	528
Consumer loans:
Residential mortgages	16		18
Other consumer	83		66
Total consumer	99		84
Total loans held for sale	$	368	$	612

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. We also purchase commercial loans from the secondary market and hold the loans as hedges against our exposure to certain total return swaps. The commercial loans under these programs are classified as commercial loans held for sale and we have elected to designate these loans under the fair value option. The fair value of these commercial loans held for sale was $175 million and $384 million at September 30, 2015 and December 31, 2014, respectively. See Note 10, "Fair Value Option," for additional information.

Commercial loans held for sale also included $27 million and $44 million of global banking loans at September 30, 2015 and December 31, 2014, respectively, as well as commercial real estate loans totaling $67 million and $100 million at September 30, 2015 and December 31, 2014, respectively.

We sell all our agency eligible residential mortgage 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 $3 million and $4 million at September 30, 2015 and December 31, 2014, 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.

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 reflects 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, with adjustments to fair value being recorded as a valuation allowance. The valuation allowance on consumer loans held for sale was $14 million and $15 million at September 30, 2015 and December 31, 2014, respectively. The valuation allowance on commercial loans held for sale was $21 million and $5 million at September 30, 2015 and December 31, 2014, respectively.