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Loan Servicing
 12 Months Ended
Dec. 31, 2014
Loan Servicing  
Loan Servicing

NOTE 7. Loan Servicing

 

Residential Mortgage Banking Activities

 

The following tables summarize residential mortgage banking activities. Mortgage and home equity loans managed or securitized exclude loans serviced for others with no other continuing involvement.

    December 31, 
    2014 2013 
          
    (Dollars in millions) 
 Mortgage loans managed or securitized$ 27,001 $ 27,349 
 Home equity loans managed (excludes home equity lines)  6,741   8,329 
 Total mortgage and home equity loans managed or securitized  33,742   35,678 
 Less:      
  LHFS  1,317   1,116 
  Mortgage loans acquired from FDIC   668   802 
  Mortgage loans sold with recourse   667   783 
 Mortgage loans held for investment $ 31,090 $ 32,977 
          
 UPB of mortgage loan servicing portfolio$ 115,476 $ 112,835 
 UPB of home equity loan servicing portfolio  6,781   8,386 
 UPB of residential mortgage and home equity loan servicing portfolio$ 122,257 $ 121,221 
 UPB of residential mortgage loans serviced for others (primarily agency      
  conforming fixed rate)$ 90,230 $ 87,434 
 Maximum recourse exposure from mortgage loans sold with recourse liability  344   372 
 Indemnification, recourse and repurchase reserves  94   72 
 FHA-insured mortgage loan reserve  85   ― 

In June 2014, BB&T received a letter from the HUD-OIG stating that BB&T has been selected for an audit survey to assess BB&T's compliance with FHA requirements related to the origination of loans insured by the FHA. In addition, HUD-OIG will evaluate BB&T's compliance with FHA requirements related to the implementation of a quality control program associated with the origination of FHA-insured loans. In November and December of 2014, BB&T received HUD-OIG subpoenas from the Department of Justice seeking additional information related to the HUD-OIG review. BB&T is cooperating and is in the process of responding to these subpoenas. While the outcome of the review process is unknown and the HUD-OIG has not asserted any claims, similar reviews and related matters with other financial institutions have resulted in cash settlements and other remedial actions. BB&T identified a potential exposure related to losses incurred by the FHA on defaulted loans that ranges from $25 million to $105 million and recognized an $85 million charge. The income statement impact of this adjustment is included in other expense on the Consolidated Statements of Income. The ultimate resolution of this matter is uncertain and the estimates of this exposure are subject to the application of significant judgment and therefore cannot be predicted with certainty at this time.

 

During the year ended December 31, 2014, BB&T also recognized a $33 million adjustment related to the indemnification reserves for mortgage loans sold, which represents an increase in estimated losses that may be incurred on FHA-insured mortgage loans that have not yet defaulted. The income statement impact of this adjustment is included in loan-related expense on the Consolidated Statements of Income.

 

Payments made to date for recourse exposure on residential mortgage loans sold with recourse liability have been immaterial.

    As Of / For The  
    Year Ended December 31, 
    2014 2013 2012 
                
    (Dollars in millions) 
 UPB of residential mortgage loans sold from the LHFS portfolio$ 13,400  $ 28,900  $ 25,640  
 Pre-tax gains recognized on mortgage loans sold and held for sale  110    292    539  
 Servicing fees recognized from mortgage loans serviced for others  275    259    247  
 Approximate weighted average servicing fee on the outstanding balance            
  of residential mortgage loans serviced for others  0.29%   0.30%   0.32% 
 Weighted average interest rate on mortgage loans serviced for others  4.20    4.24    4.59  

The following table presents a roll forward of the carrying value of residential MSRs recorded at fair value:
               
      Year Ended December 31, 
      2014 2013 2012 
               
      (Dollars in millions) 
 Carrying value, January 1, $ 1,047 $ 627 $ 563 
  Additions   141   336   270 
  Change in fair value due to changes in valuation inputs or assumptions:         
   Prepayment speeds  (219)   287   19 
   Weighted average OAS  ―   (31)   (36) 
   Servicing costs  (2)   (29)   (22) 
  Realization of expected net servicing cash flows, passage of time and other  (123)   (143)   (167) 
 Carrying value, December 31,$ 844 $ 1,047 $ 627 
               
 Gains (losses) on derivative financial instruments used to mitigate the         
  income statement effect of changes in fair value$ 251 $ (197) $ 128 

The sensitivity of the fair value of the residential MSRs to changes in key assumptions is included in the accompanying table:

    December 31, 2014 December 31, 2013 
    Range Weighted Range Weighted 
    Min Max Average Min Max Average 
                        
    (Dollars in millions) 
 Prepayment speed 10.8%  12.8%   12.0%  5.5%  8.0%   6.9% 
  Effect on fair value of a 10% increase       $ (30)        $ (33)  
  Effect on fair value of a 20% increase         (58)          (64)  
                        
 OAS 9.1%  9.9%   9.3%  9.1%  9.9%   9.3% 
  Effect on fair value of a 10% increase       $ (26)        $ (39)  
  Effect on fair value of a 20% increase         (50)          (75)  
                        
 Composition of loans serviced for others:                    
  Fixed-rate residential mortgage loans         99.4%         99.7% 
  Adjustable-rate residential mortgage loans         0.6          0.3  
   Total         100.0%         100.0% 
                        
 Weighted average life         5.7yrs         7.9yrs 

The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. As indicated, changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in the above table, the effect of an adverse variation in a particular assumption on the fair value of the MSRs is calculated without changing any other assumption; while in reality, changes in one factor may result in changes in another, which may magnify or counteract the effect of the change.

 

Commercial Mortgage Banking Activities

 

CRE mortgage loans serviced for others are not included in loans and leases on the accompanying Consolidated Balance Sheets. The following table summarizes commercial mortgage banking activities for the periods presented:

     December 31, 
     2014 2013 
           
     (Dollars in millions) 
 UPB of CRE mortgages serviced for others$ 27,599 $ 28,095 
 CRE mortgages serviced for others covered by recourse provisions  4,264   4,594 
 Maximum recourse exposure from CRE mortgages      
  sold with recourse liability  1,278   1,320 
 Recorded reserves related to recourse exposure  7   9 
 Originated CRE mortgages during the year  5,265   4,881