PNC Bank 2012 Annual Report Download - page 87

Residential Mortgage Banking reported a loss of $308 million
in 2012 compared with earnings of $89 million in 2011.
Earnings declined from the prior year primarily as a result of
higher provision for residential mortgage repurchase
obligations, higher noninterest expense, including goodwill
impairment, and lower net hedging gains on mortgage
servicing rights, partially offset by increased loan sales
revenue driven by higher loan origination volume.
The strategic focus of the business is the acquisition of new
customers through a retail loan officer sales force with an
emphasis on home purchase transactions. Two key aspects of
this strategy are: (i) competing on the basis of superior service
to new and existing customers in serving their home purchase
and refinancing needs; and (ii) pursuing strategic partnerships
with reputable residential real estate franchises to acquire new
customers. A key consideration in pursuing this approach is
the cross-sell opportunity, especially in the bank footprint
markets.
Residential Mortgage Banking overview:
• Total loan originations were $15.2 billion for 2012
compared with $11.4 billion in 2011. Loans continue
to be originated primarily through direct channels
under FNMA, FHLMC and FHA/VA agency
guidelines. Refinancings were 77% of originations
for 2012 and 76% in 2011. During 2012, 30% of loan
originations were under the original or revised Home
Affordable Refinance Program (HARP or HARP 2).
• Investors having purchased mortgage loans may
request PNC to indemnify them against losses on
certain loans or to repurchase loans that they believe
do not comply with applicable contractual loan
origination covenants and representations and
warranties we have made. At December 31, 2012, the
liability for estimated losses on repurchase and
indemnification claims for the Residential Mortgage
Banking business segment was $614 million
compared with $83 million at December 31, 2011.
See the Recourse And Repurchase Obligations
section of this Item 7 and Note 24 Commitments and
Guarantees in the Notes To Consolidated Financial
Statements in Item 8 of this Report for additional
information.
– PNC has experienced and expects to experience
further elevated levels of residential mortgage
loan repurchase demands reflecting changes in
behavior and demand patterns of two
government-sponsored enterprises, FHLMC
and FNMA, primarily related to loans sold in
2004 through 2008 into agency securitizations.
• Residential mortgage loans serviced for others totaled
$119 billion at December 31, 2012 compared with
$118 billion at December 31, 2011. Payoff volumes
remained high, but new direct loan origination
volume and servicing portfolio acquisitions offset the
decline.
• Noninterest income was $317 million in 2012
compared with $751 million in 2011. The decrease
resulted from current year additions to reserves of
$761 million for residential mortgage loan repurchase
obligations as compared to $102 million in 2011 and
lower net hedging gains on mortgage servicing rights,
partially offset by increased loan sales revenue driven
by higher loan origination volume.
• Net interest income was $209 million in 2012
compared with $201 million in 2011.
• Noninterest expense was $992 million in 2012
compared with $797 million in 2011. The increase
from the prior year was primarily driven by increased
residential mortgage origination volumes, servicing
costs, a goodwill impairment charge and higher
additions to legal reserves. Included in noninterest
expense in the fourth quarter of 2012 was an
approximately $70 million charge resulting from an
agreement to amend consent orders previously
entered into by PNC with its banking regulators. The
agreement ends the independent foreclosure review
program under the consent orders and replaces it with
an accelerated remediation process.
• The fair value of mortgage servicing rights was $.7
billion at both December 31, 2012 and December 31,
2011.
68 The PNC Financial Services Group, Inc. – Form 10-K