Wells Fargo 2007 Annual Report Download - page 97

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94
Mortgage banking activities, included in the Community
Banking and Wholesale Banking operating segments,
consist of residential and commercial mortgage originations
and servicing.
Effective January 1, 2006, upon adoption of FAS 156,
we remeasured our residential mortgage servicing rights
(MSRs) at fair value and recognized a pre-tax adjustment of
$158 million to residential MSRs and recorded a corresponding
cumulative effect adjustment of $101 million (after tax) to
increase the 2006 beginning balance of retained earnings in
stockholders’ equity. The table below reconciles the
December 31, 2005, and the January 1, 2006, balance of MSRs.
Note 9: Mortgage Banking Activities
(in millions) Residential Commercial Total
MSRs MSRs MSRs
Balance at December 31, 2005 $12,389 $122 $12,511
Remeasurement upon
adoption of FAS 156 158 — 158
Balance at January 1, 2006 $12,547 $122 $12,669
(in millions) Year ended December 31,
2007 2006
Fair value, beginning of year $17,591 $12,547
Purchases 803 3,859
Servicing from securitizations
or asset transfers 3,680 4,107
Sales (1,714) (469)
Net additions 2,769 7,497
Changes in fair value:
Due to changes in valuation
model inputs or assumptions (1) (571) (9)
Other changes in fair value (2) (3,026) (2,444)
Total changes in fair value (3,597) (2,453)
Fair value, end of year $16,763 $17,591
(1) Principally reflects changes in discount rates and prepayment speed
assumptions, mostly due to changes in interest rates.
(2) Represents changes due to collection/realization of expected cash flows
over time.
The changes in residential MSRs measured using the fair
value method were:
(in millions) Year ended December 31,
2007 2006 2005
Balance, beginning of year $377 $122 $ 9,466
Purchases (1) 120 278 2,683
Servicing from securitizations
or asset transfers (1) 40 11 2,652
Amortization (71) (34) (1,991)
Other (includes changes
due to hedging) — — 888
Balance, end of year $466 $377 $13,698
Valuation allowance:
Balance, beginning of year $— $ — $ 1,565
Reversal of provision for
MSRs in excess of fair value — — (378)
Balance, end of year $— $ — $ 1,187
Amortized MSRs, net $466 $377 $12,511
Fair value of amortized MSRs:
Beginning of year $457 $146 $ 7,913
End of year 573 457 12,693
(1) Based on December 31, 2007, assumptions, the weighted-average amortization
period for MSRs added during the year was approximately 10.8 years.
The changes in amortized MSRs were:
(in billions) December 31,
2007 2006
Loans serviced for others (1) $1,430 $1,280
Owned loans serviced (2) 98 86
Total owned servicing 1,528 1,366
Sub-servicing 23 19
Total managed servicing portfolio $1,551 $1,385
Ratio of MSRs to related loans
serviced for others 1.20% 1.41%
(1) Consists of 1-4 family first mortgage and commercial mortgage loans.
(2) Consists of mortgages held for sale and 1-4 family first mortgage loans.
The components of our managed servicing portfolio were: