Wells Fargo 2012 Annual Report Download - page 179

In addition to residential mortgage servicing rights (MSRs)
included in the previous table, we have a small portfolio of
commercial MSRs with a fair value of $1.4 billion at
December 31, 2012, and December 31, 2011. The nature of our
commercial MSRs, which are carried at LOCOM, is different
from our residential MSRs. Prepayment activity on serviced
loans does not significantly impact the value of commercial
MSRs because, unlike residential mortgages, commercial
mortgages experience significantly lower prepayments due to
certain contractual restrictions, impacting the borrower’s ability
to prepay the mortgage. Additionally, for our commercial MSR
portfolio, we are typically master/primary servicer, but not the
special servicer, who is separately responsible for the servicing
and workout of delinquent and foreclosed loans. It is the special
servicer, similar to our role as servicer of residential mortgage
loans, who is affected by higher servicing and foreclosure costs
due to an increase in delinquent and foreclosed loans.
Accordingly, prepayment speeds and costs to service are not key
assumptions for commercial MSRs as they do not significantly
impact the valuation. The primary economic driver impacting
the fair value of our commercial MSRs is forward interest rates,
which are derived from market observable yield curves used to
price capital markets instruments. Market interest rates most
significantly affect interest earned on custodial deposit balances.
The sensitivity of the current fair value to an immediate adverse
25% change in the assumption about interest earned on deposit
balances at December 31, 2012, and 2011, results in a decrease in
fair value of $139 million and $219 million, respectively. See
Note 9 for further information on our commercial MSRs.
The sensitivities in the preceding paragraph and table are
hypothetical and caution should be exercised when relying on
this data. Changes in value based on variations in assumptions
generally cannot be extrapolated because the relationship of the
change in the assumption to the change in value may not be
linear. Also, the effect of a variation in a particular assumption
on the value of the other interests held is calculated
independently without changing any other assumptions. In
reality, changes in one factor may result in changes in others (for
example, changes in prepayment speed estimates could result in
changes in the credit losses), which might magnify or counteract
the sensitivities.
The following table presents information about the principal
balances of off-balance sheet securitized loans, including
residential mortgages sold to FNMA, FHLMC, GNMA and
securitizations where servicing is our only form of continuing
involvement. Delinquent loans include loans 90 days or more
past due and still accruing interest as well as nonaccrual loans.
In securitizations where servicing is our only form of continuing
involvement, we would only experience a loss if required to
repurchase a delinquent loan due to a breach in representations
and warranties associated with our loan sale or servicing
contracts.
Net charge-offs
Total loans Delinquent loans Year ended
December 31, December 31, December 31,
(in millions) 2012 2011 2012 2011 2012 2011
Commercial:
Real estate mortgage $ 128,564 137,121 12,216 11,142 541 569
Total commercial 128,564 137,121 12,216 11,142 541 569
Consumer:
Real estate 1-4 family first mortgage 1,283,504 1,171,666 21,574 24,235 1,170 1,506
Real estate 1-4 family junior lien mortgage 1 2 - - - 16
Other revolving credit and installment 2,034 2,271 110 131 - -
Total consumer 1,285,539 1,173,939 21,684 24,366 1,170 1,522
Total off-balance sheet securitized loans (1) $ 1,414,103 1,311,060 33,900 35,508 1,711 2,091
(1) At December 31, 2012 and 2011, the table includes total loans of $1.3 trillion and $1.2 trillion, respectively, and delinquent loans of $17.4 billion and $19.7 billion,
respectively for FNMA, FHLMC and GNMA. Net charge-offs exclude loans sold to FNMA, FHLMC and GNMA as we do not service or manage the underlying real estate upon
foreclosure and, as such, do not have access to net charge-off information.
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