Loans Held for Sale

Loans held for sale consisted of the following:



At December 31,	2019		2018
	(in millions)
Commercial loans:
Real estate, including construction	$	83	$	27
Business and corporate banking	35		—
Global banking	94		367
Total commercial	212		394
Consumer loans:
Residential mortgages	77		65
Other consumer	—		53
Total consumer	77		118
Total loans held for sale	$	289	$	512

Commercial Loans Included in commercial loans held for sale are certain loans that we have elected to designate under the fair value option which consists of loans that we originate in connection with our participation in a number of syndicated credit facilities with the intent of selling them to unaffiliated third parties as well as loans that we purchase from the secondary market and hold as hedges against our exposure to certain total return swaps. The fair value of these loans totaled $178 million and $109 million at December 31, 2019 and 2018, respectively. See Note 16, "Fair Value Option," for additional information.

Commercial loans held for sale also includes certain loans that we no longer intend to hold for investment and were transferred to held for sale which totaled $34 million and $285 million at December 31, 2019 and 2018, respectively. During 2019, we recorded no lower of amortized cost or fair value adjustments on commercial loans held for sale. During both 2018 and 2017, we reversed $5 million of the lower of amortized cost or fair value adjustments previously recorded on commercial loans held for sale as a component of other income in the consolidated statement of income (loss) as a result of an increase in fair value due to improved pricing.

Consumer Loans Included in residential mortgage loans held for sale are agency-eligible residential mortgage loans which are originated and held for sale to third parties, currently on a servicing retained basis. Gains and losses from the sale of these residential mortgage loans are reflected as a component of other income in the consolidated statement of income (loss).

During the first quarter of 2019, we transferred $53 million of student loans that were previously classified as other consumer loans held for sale to held for investment as we now intend to hold these loans for the foreseeable future.

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. Beginning with 2018 applications, interest rate risk for agency-eligible residential mortgage loans held for sale is partially mitigated through an economic hedging program to offset changes in the fair value of these mortgage loans held for sale, from the time of commitment to sale, attributable to changes in market interest rates. Revenue associated with this economic hedging program, which is reflected as a component of other income in the consolidated statement of income (loss), was a loss of $1 million during both 2019 and 2018, respectively. Prior to 2018 applications, PHH Mortgage Corporation ("PHH Mortgage") was obligated to purchase agency-eligible residential mortgage loans from us directly upon origination and, as such, we retained none of the risk of market changes in mortgage rates for these loans purchased by PHH Mortgage.

Valuation Allowances Excluding the commercial loans designated under the 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 through other revenues. The valuation allowance on consumer loans held for sale was $2 million and $4 million at December 31, 2019 and 2018, respectively. The valuation allowance on commercial loans held for sale was nil and $3 million at December 31, 2019 and 2018, respectively.