Wells Fargo 2014 Annual Report Download - page 68

Risk Management - Credit Risk Management (continued)
REAL ESTATE 1-4 FAMILY FIRST AND JUNIOR LIEN is discussed later in this Report, and other purchased loans and
MORTGAGE LOANS Our real estate 1-4 family first and junior loans included on our balance sheet as a result of consolidation
lien mortgage loans primarily include loans we have made to of variable interest entities (VIEs).
customers and retained as part of our asset/liability
management strategy. These loans, as presented in Table 23,
include the Pick-a-Pay portfolio acquired from Wachovia, which
Table 23: Real Estate 1-4 Family First and Junior Lien Mortgage Loans
December 31, 2014 December 31, 2013
(in millions) Balance % of portfolio Balance % of portfolio
Real estate 1-4 family first mortgage
Core portfolio
Non-strategic and liquidating loan portfolios:
Pick-a-Pay mortgage
Other PCI and liquidating first mortgage
$ 208,852
45,002
11,532
64%
14
4
$ 194,499
50,971
13,037
60%
16
4
Total non-strategic and liquidating loan portfolios 56,534 18 64,008 20
Total real estate 1-4 family first mortgage loans 265,386 82 258,507 80
Real estate 1-4 family junior lien mortgage
Core portfolio
Non-strategic and liquidating loan portfolios
56,631
3,086
17
1
62,037
3,913
19
1
Total real estate 1-4 family junior lien mortgage loans 59,717 18 65,950 20
Total real estate 1-4 family mortgage loans $ 325,103 100% $ 324,457 100%
The real estate 1-4 family mortgage loan portfolio includes
some loans with adjustable-rate features and some with an
interest-only feature as part of the loan terms. Interest-only
loans were approximately 12% and 15% of total loans at
December 31, 2014 and December 31, 2013, respectively. We
believe we have manageable adjustable-rate mortgage (ARM)
reset risk across our owned mortgage loan portfolios. We do not
offer option ARM products, nor do we offer variable-rate
mortgage products with fixed payment amounts, commonly
referred to within the financial services industry as negative
amortizing mortgage loans. The option ARMs we do have are
included in the Pick-a-Pay portfolio which was acquired from
Wachovia and are part of our liquidating loan portfolios. Since
our acquisition of the Pick-a-Pay loan portfolio at the end of
2008, the option payment portion of the portfolio has reduced
from 86% to 41% at December 31, 2014, as a result of our
modification activities and customers exercising their option to
convert to fixed payments. For more information, see the “Pick-
a-Pay Portfolio” section later in this Report.
We continue to modify real estate 1-4 family mortgage loans
to assist homeowners and other borrowers experiencing
financial difficulties. Loans are underwritten at the time of the
modification in accordance with underwriting guidelines
established for governmental and proprietary loan modification
programs. As a participant in the U.S. Treasury’s Making Home
Affordable (MHA) programs, we are focused on helping
customers stay in their homes. The MHA programs create a
standardization of modification terms including incentives paid
to borrowers, servicers, and investors. MHA includes the Home
Affordable Modification Program (HAMP) for first lien loans and
the Second Lien Modification Program (2MP) for junior lien
loans. Under both our proprietary programs and the MHA
programs, we may provide concessions such as interest rate
reductions, forbearance of principal, and in some cases,
principal forgiveness. These programs generally include trial
payment periods of three to four months, and after successful
completion and compliance with terms during this period, the
loan is permanently modified. Once the loan is modified either
through a permanent modification or a trial period, it is
accounted for as a TDR. See the “Critical Accounting Policies –
Allowance for Credit Losses” section in this Report for
discussion on how we determine the allowance attributable to
our modified residential real estate portfolios.
Part of our credit monitoring includes tracking delinquency,
FICO scores and loan/combined loan to collateral values (LTV/
CLTV) on the entire real estate 1-4 family mortgage loan
portfolio. These credit risk indicators, which exclude government
insured/guaranteed loans, continued to improve in fourth
quarter 2014 on the non-PCI mortgage portfolio. Loans 30 days
or more delinquent at December 31, 2014, totaled $10.2 billion,
or 3%, of total non-PCI mortgages, compared with $11.9 billion,
or 4%, at December 31, 2013. Loans with FICO scores lower than
640 totaled $25.8 billion at December 31, 2014, or 9% of total
non-PCI mortgages, compared with $31.5 billion, or 10%, at
December 31, 2013. Mortgages with a LTV/CLTV greater than
100% totaled $20.3 billion at December 31, 2014, or 7% of total
non-PCI mortgages, compared with $34.3 billion, or 11%, at
December 31, 2013. Information regarding credit risk indicators,
including PCI credit risk indicators, can be found in Note 6
(Loans and Allowance for Credit Losses) to Financial Statements
in this Report.
Real estate 1-4 family first and junior lien mortgage loans by
state are presented in Table 24. Our real estate 1-4 family
mortgage loans to borrowers in California represented
approximately 13% of total loans at December 31, 2014, located
mostly within the larger metropolitan areas, with no single
California metropolitan area consisting of more than 4% of total
loans. We monitor changes in real estate values and underlying
economic or market conditions for all geographic areas of our
real estate 1-4 family mortgage portfolio as part of our credit risk
management process. Our underwriting and periodic review of
loans secured by residential real estate collateral includes
appraisals or estimates from automated valuation models
(AVMs) to support property values. AVMs are computer-based
tools used to estimate the market value of homes. AVMs are a
lower-cost alternative to appraisals and support valuations of
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