Wells Fargo 2011 Annual Report Download - page 173

Note 9: Mortgage Banking Activities
Mortgage banking activities, included in the Community
Banking and Wholesale Banking operating segments, consist of
residential and commercial mortgage loan origination, sale
activity and servicing.
We apply fair value method to substantially all of our
residential MSRs and apply the amortization method to all
commercial and some residential MSRs. The changes in MSRs
measured using the fair value method were:
Year ended December 31,
(in millions)
2011
2010
2009
Fair value, beginning of year
$
14,467
16,004
14,714
Adjustments from adoption of consolidation accounting guidance
-
(118)
-
Acquired from Wachovia (1)
-
-
34
Servicing from securitizations or asset transfers
3,957
4,092
6,226
Net additions
3,957
3,974
6,260
Changes in fair value:
Due to changes in valuation model inputs or assumptions (2)
(3,680)
(2,957)
(1,534)
Other changes in fair value (3)
(2,141)
(2,554)
(3,436)
Total changes in fair value
(5,821)
(5,511)
(4,970)
Fair value, end of year
$
12,603
14,467
16,004
(1) The 2009 amount reflects refinements to initial December 31, 2008, Wachovia purchase accounting adjustments.
(2) Principally reflects changes in discount rates and prepayment speed assumptions, mostly due to changes in interest rates, and costs to service, including delinquency and
foreclosure costs.
(3) Represents changes due to collection/realization of expected cash flows over time.
The changes in amortized MSRs were:
Year ended December 31,
(in millions)
2011
2010
2009
Balance, beginning of year
$
1,422
1,119
1,446
Adjustments from adoption of consolidation accounting guidance
-
(5)
-
Purchases
155
58
11
Acquired from Wachovia (1)
-
-
(135)
Servicing from securitizations or asset transfers
132
478
61
Amortization
(264)
(228)
(264)
Balance, end of year (2)
1,445
1,422
1,119
Valuation allowance:
Balance, beginning of year
(3)
-
-
Provision for MSRs in excess of fair value
(34)
(3)
-
Balance, end of year (3)
(37)
(3)
-
Amortized MSRs, net
$
1,408
1,419
1,119
Fair value of amortized MSRs:
Beginning of year
$
1,812
1,261
1,555
End of year (4)
1,756
1,812
1,261
(1) The 2009 amount reflects refinements to initial December 31, 2008, Wachovia purchase accounting adjustments.
(2) Includes $350 million and $400 million in residential amortized MSRs at December 31, 2011 and 2010, respectively. The 2009 balance is all commercial amortized MSRs. For
the years ended December 31, 2011 and 2010, the residential MSR amortization was $(50) million and $(5) million, respectively. Effective January 1, 2012, the amortized
residential MSR portfolio will be transferred to MSRs carried at fair value.
(3) Commercial amortized MSRs are evaluated for impairment purposes by the following risk strata: agency (GSEs) and non-agency. There was no valuation allowance recorded
for the periods presented on the commercial amortized MSRs. Residential amortized MSRs are evaluated for impairment purposes by the following risk strata: Mortgages
sold to GSEs (FHLMC and FNMA) and mortgages sold to GNMA, each by interest rate stratifications. A valuation allowance of $37 million and $3 million was recorded on the
residential amortized MSRs for the years ended December 31, 2011 and 2010, respectively.
(4) Includes fair value of $316 million and $441 million in residential amortized MSRs and $1,440 million and $1,371 million in commercial amortized MSRs at
December 31, 2011 and 2010, respectively.
171