Loan Sale and Servicing Activities and Variable Interest Entities

12 Months Ended

Dec. 31, 2014

Loan Sale and Servicing Activities and Variable Interest Entities [Abstract]

Loan Sale and Servicing Activities and Variable Interest Entities

Note 2 Loan Sale and Servicing Activities and Variable Interest Entities

Loan Sale and Servicing Activities

We have transferred residential and commercial mortgage loans in securitization or sales transactions in which we have continuing involvement. These transfers have occurred through Agency securitization, Non-agency securitization, and loan sale transactions. Agency securitizations consist of securitization transactions with Federal National Mortgage Association (FNMA), Federal Home Loan Mortgage Corporation (FHLMC) and Government National Mortgage Association (GNMA) (collectively the Agencies). FNMA and FHLMC generally securitize our transferred loans into mortgage-backed securities for sale into the secondary market through special purpose entities (SPEs) that they sponsor. We, as an authorized GNMA issuer/servicer, pool Federal Housing Administration (FHA) and Department of Veterans Affairs (VA) insured loans into mortgage-backed securities for sale into the secondary market. In Non-agency securitizations, we have transferred loans into securitization SPEs. In other instances, third-party investors have also purchased our loans in loan sale transactions and in certain instances have subsequently sold these loans into securitization SPEs. Securitization SPEs utilized in the Agency and Non-agency securitization transactions are variable interest entities (VIEs).

Our continuing involvement in the FNMA, FHLMC, and GNMA securitizations, Non-agency securitizations, and loan sale transactions generally consists of servicing, repurchasing previously transferred loans under certain conditions and loss share arrangements, and, in limited circumstances, holding of mortgage-backed securities issued by the securitization SPEs.

Depending on the transaction, we may act as the master, primary, and/or special servicer to the securitization SPEs or third-party investors. Servicing responsibilities typically consist of collecting and remitting monthly borrower principal and interest payments, maintaining escrow deposits, performing loss mitigation and foreclosure activities, and, in certain instances, funding of servicing advances. Servicing advances, which are reimbursable, are made for principal and interest and collateral protection and are recognized in Other assets at cost.

We earn servicing and other ancillary fees for our role as servicer and, depending on the contractual terms of the servicing arrangement, we can be terminated as servicer with or without cause. At the consummation date of each type of loan transfer where PNC retains the servicing, we recognize a servicing right at fair value. See Note 7 Fair Value and Note 8 Goodwill and Other Intangible Assets for further discussion of our servicing rights.

Certain loans transferred tothe Agencies contain removal of account provisions (ROAPs). Under these ROAPs, we hold an option to repurchase at par individual delinquent loans that meet certain criteria. In other limited cases, the U.S. Department of Housing and Urban Development (HUD) has granted us the right to repurchase current loans when we intend to modify the borrower’s interest rate under established guidelines.When we have the unilateral ability to repurchase a loan, effective control over the loan has been regained and we recognize an asset (in either Loans or Loans held for sale)and a corresponding liability (in Other borrowed funds)on the balance sheet regardless of our intent to repurchase the loan. At December 31,2014 and December 31, 2013, these assets and liabilities both totaled $136 million and $128 million, respectively.

The Agency and Non-agency mortgage-backed securities issued by the securitization SPEs that are purchased and held on our balance sheet are typicallypurchased in the secondary market. PNC does not retain any credit risk on its Agency mortgage-backed security positions as FNMA, FHLMC, and the U.S. Government (for GNMA) guarantee losses of principal and interest. Substantially all of the Non-agency mortgage-backed securities acquired and held on our balance sheet are senior tranches in the securitization structure.

We also have involvement with certain Agency and Non-agency commercial securitization SPEs where we have not transferred commercial mortgage loans. These SPEs were sponsored by independent third-parties and the loans held by these entities were purchased exclusively from other third-parties. Generally, our involvement with these SPEs is as servicer with servicing activities consistent with those described above.

We recognize a liability for our loss exposure associated with contractual obligations to repurchase previously transferred loans due to breaches of representations and warranties and also for loss sharing arrangements (recourse obligations) with the Agencies. Other than providing temporary liquidity under servicing advances and our loss exposure associated with our repurchase and recourse obligations, we have not provided nor are we required to provide any type of credit support, guarantees, or commitments to the securitization SPEs or third-party investors in these transactions. See Note 22 Commitments and Guarantees for further discussion of our repurchase and recourse obligations.

The following table provides certain financial information and cash flows associated with PNC's loan sale and servicing activities:

Table 56: Certain Financial Information and Cash Flows Associated with Loan Sale and Servicing Activities
	Residential			Commercial		Home Equity
In millions	Mortgages			Mortgages (a)		Loans/Lines (b)
FINANCIAL INFORMATION - December 31, 2014
Servicing portfolio (c)		$	108,010	$	186,032	$	3,833
Carrying value of servicing assets (d)			845		506
Servicing advances (e)			501		299		31
Repurchase and recourse obligations (f)			107		35		29
Carrying value of mortgage-backed securities held (g)			3,365		1,269
FINANCIAL INFORMATION - December 31, 2013
Servicing portfolio (c)		$	113,994	$	176,510	$	4,321	(h)
Carrying value of servicing assets (d)			1,087		549
Servicing advances (e)			571		412		11
Repurchase and recourse obligations (f)			131		33		22
Carrying value of mortgage-backed securities held (g)			4,144		1,475

		Residential			Commercial		Home Equity
In millions		Mortgages			Mortgages (a)		Loans/Lines (b)
CASH FLOWS - Year ended December 31, 2014
Sales of loans (i)			$	8,344	$	3,469
Repurchases of previously transferred loans (j)				744			$	14
Servicing fees (k)				346		132		19
Servicing advances recovered/(funded), net				70		113		(20)
Cash flows on mortgage-backed securities held (g)				934		308
CASH FLOWS - Year ended December 31, 2013
Sales of loans (i)			$	14,650	$	2,754
Repurchases of previously transferred loans (j)				1,191			$	9
Servicing fees (k)				362		176		21
Servicing advances recovered/(funded), net				11		93		(6)
Cash flows on mortgage-backed securities held (g)				1,456		411
(a)	Represents financial information and cash flows associated with both commercial mortgage loan transfer and servicing activities.
(b)	These activities were part of an acquired brokered home equity lending business in which PNC is no longer engaged. See Note 22 Commitments and Guarantees for further information.
(c)	For our continuing involvement with residential mortgages, this amount represents the outstanding balance of loans we service, including loans transferred by us and loans originated by others where we have purchased the associated servicing rights. For home equity loan/line of credit transfers, this amount represents the outstanding balance of loans transferred and serviced. For commercial mortgages, this amount represents our overall servicing portfolio in which loans have been transferred by us or third parties to VIEs.
(d)	See Note 7 Fair Value and Note 8 Goodwill and Other Intangible Assets for further information.
(e)	Pursuant to certain contractual servicing agreements, represents outstanding balance of funds advanced (i) to investors for monthly collections of borrower principal and interest, (ii) for borrower draws on unused home equity lines of credit, and (iii) for collateral protection associated with the underlying mortgage collateral.
(f)	Represents liability for our loss exposure associated with loan repurchases for breaches of representations and warranties for our Residential Mortgage Banking and Non-Strategic Assets Portfolio segments, and our commercial mortgage loss share arrangements for our Corporate & Institutional Banking segment. See Note 22 Commitments and Guarantees for further information.
(g)	Represents securities held where PNC transferred to and/or services loans for a securitization SPE and we hold securities issued by that SPE.
(h)	In prior periods, the unpaid principal balance reflected the outstanding balance at the time of charge-off. During the second quarter of 2014, we corrected the outstanding principal balance to reflect the unpaid principal balance as of the reporting date. Amounts reported in prior periods were decreased by approximately $581 million.
(i)	Gains/losses recognized on sales of loans were insignificant for the periods presented.
(j)	Includes government insured or guaranteed loans eligible for repurchase through the exercise of our ROAP option and loans repurchased due to breaches of origination covenants or representations and warranties made to purchasers.
(k)	Includes contractually specified servicing fees, late charges and ancillary fees.

The table below presents information about the principal balances of transferred loans that we service and are not recorded on our balance sheet.

Table 57: Principal Balance, Delinquent Loans, and Net Charge-offs Related to Serviced Loans
		Residential		Commercial		Home Equity
In millions		Mortgages		Mortgages (a)		Loans/Lines (b)
December 31, 2014
Total principal balance	$	79,108	$	60,873	$	3,833
Delinquent loans (c)		2,657		707		1,303
December 31, 2013
Total principal balance	$	85,758	$	62,872	$	4,321	(d)
Delinquent loans (c)		3,562		2,353		1,404	(d)

		Residential		Commercial		Home Equity
In millions		Mortgages		Mortgages (a)		Loans/Lines (b)
Year ended December 31, 2014
Net charge-offs (e)	$	136	$	1,288	$	61
Year ended December 31, 2013
Net charge-offs (e)	$	213	$	916	$	119
(a) Represents information at the securitization level in which PNC has sold loans and is the servicer for the securitization.
(b) These activities were part of an acquired brokered home equity lending business in which PNC is no longer engaged. See Note 22 Commitments and Guarantees for further information.
(c) Serviced delinquent loans are 90 days or more past due or are in process of foreclosure.
(d) In prior periods, the unpaid principal balance reflected the outstanding balance at the time of charge-off. During the second quarter of 2014, we corrected the outstanding principal balance to reflect the unpaid principal balance as of the reporting date. Amounts reported in prior periods were decreased by approximately $581 million.
(e) Net charge-offs for Residential mortgages and Home equity loans/lines represent credit losses less recoveries distributed and as reported to investors during the period. Net charge-offs for Commercial mortgages represent credit losses less recoveries distributed and as reported by the trustee for CMBS securitizations. Realized losses for Agency securitizations are not reflected as we do not manage the underlying real estate upon foreclosure and, as such, do not have access to loss information.

Variable Interest Entities (VIEs)

We are involved with various entities in the normal course of business that are deemed to be VIEs. We assess VIEs for consolidation based upon the accounting policies described in Note 1 Accounting Policies. The following provides a summary of VIEs, including those that we have consolidated and those in which we hold variable interests but have not consolidated into our financial statements as of December 31,2014 and December 31, 2013. We have not provided additional financial support to these entities which we are not contractually required to provide.

Table 58: Consolidated VIEs – Carrying Value (a) (b)
December 31, 2014			Credit Card and Other			Tax Credit
In millions			Securitization Trusts			Investments			Total
Assets
Cash and due from banks							$	6		$	6
Interest-earning deposits with banks								6			6
Loans				$	1,606						1,606
Allowance for loan and lease losses					(50)						(50)
Equity investments								492			492
Other assets					31			452			483
	Total assets			$	1,587		$	956		$	2,543
Liabilities
Other borrowed funds				$	166		$	181		$	347
Accrued expenses								70			70
Other liabilities								206			206
	Total liabilities			$	166		$	457		$	623
December 31, 2013			Credit Card and Other			Tax Credit
In millions			Securitization Trusts			Investments			Total
Assets
Cash and due from banks							$	5		$	5
Interest-earning deposits with banks								7			7
Loans				$	1,736						1,736
Allowance for loan and lease losses					(58)						(58)
Equity investments								582			582
Other assets					25			566			591
	Total assets			$	1,703		$	1,160		$	2,863
Liabilities
Other borrowed funds				$	184		$	230		$	414
Accrued expenses								83			83
Other liabilities								252			252
	Total liabilities			$	184		$	565		$	749
(a)		Amounts represent carrying value on PNC’s Consolidated Balance Sheet.
(b)		Difference between total assets and total liabilities represents the equity portion of the VIE or intercompany assets and liabilities which are eliminated in consolidation.

Table 59: Non-Consolidated VIEs
									Carrying Value of Assets Owned by PNC			Carrying Value of Liabilities Owned by PNC
		Aggregate			Aggregate		PNC Risk
In millions		Assets			Liabilities		of Loss (a)
December 31, 2014
Commercial Mortgage-Backed Securitizations (b)			$	53,436	$	53,436	$	1,550	$	1,550	(d)	$	1	(f)
Residential Mortgage-Backed Securitizations (b)				62,236		62,236		3,385		3,385	(d)		4	(f)
Tax Credit Investments and Other (c)				7,493		2,933		2,270		2,304	(e)		777	(g)
	Total		$	123,165	$	118,605	$	7,205	$	7,239		$	782
									Carrying Value of Assets Owned by PNC			Carrying Value of Liabilities Owned by PNC
		Aggregate			Aggregate		PNC Risk
In millions		Assets			Liabilities		of Loss (a)
December 31, 2013
Commercial Mortgage-Backed Securitizations (b)			$	65,757	$	65,757	$	1,747	$	1,747	(d)
Residential Mortgage-Backed Securitizations (b)				37,962		37,962		4,171		4,171	(d)	$	5	(f)
Tax Credit Investments and Other (c) (h)				7,086		2,622		2,030		2,055	(e)		826	(g)
	Total		$	110,805	$	106,341	$	7,948	$	7,973		$	831
(a)	This represents loans, investments and other assets related to non-consolidated VIEs, net of collateral (if applicable). Our total exposure related to our involvement in loan sale and servicing activities is disclosed in Table 56. Additionally, we also invest in other mortgage and asset-backed securities issued by third-party VIEs with which we have no continuing involvement. Further information on these securities is included in Note 6 Investment Securities and values disclosed represent our maximum exposure to loss for those securities’ holdings.
(b)	Amounts reflect involvement with securitization SPEs where PNC transferred to and/or services loans for an SPE and we hold securities issued by that SPE. Asset amounts equal outstanding liability amounts of the SPEs due to limited availability of SPE financial information.
(c)	Aggregate assets and aggregate liabilities are based on limited availability of financial information associated with certain acquired partnerships and certain LLCs engaged in solar power generation to which PNC provides lease financing. The aggregate assets and aggregate liabilities of LLCs engaged in solar power generation may not be reflective of the size of these VIEs due to differences in classification of leases by these entities.
(d)	Included in Trading securities, Investment securities, Other intangible assets and Other assets on our Consolidated Balance Sheet.
(e)	Included in Loans, Equity investments and Other assets on our Consolidated Balance Sheet.
(f)	Included in Other liabilities on our Consolidated Balance Sheet.
(g)	Included in Deposits and Other liabilities on our Consolidated Balance Sheet.
(h)	PNC Risk of Loss and Carrying Value of Assets Owned by PNC have been updated to reflect the first quarter 2014 adoption of ASU 2014-01 related to investments in low income housing tax credits.

Credit Card Securitization Trust

We were the sponsor of several credit card securitizations facilitated through a trust. This bankruptcy-remote SPE was established to purchase credit card receivables from the sponsor and to issue and sell asset-backed securities created by it to independent third-parties. The SPE was financed primarily through the sale of these asset-backed securities. These transactions were originally structured to provide liquidity and to afford favorable capital treatment.

Our continuing involvement in these securitization transactions consisted primarily of holding certain retained interests and acting as the primary servicer.We consolidated the SPE as we were deemed the primary beneficiary of the entity based upon our level of continuing involvement. Our role as primary servicer gave us the power to direct the activities of the SPE that most significantly affect its economic performance and our holding of retained interests gave us the obligation to absorb expected losses, or the ability to receive residual returns that could be potentially significant to the SPE. The underlying assets of the consolidated SPE were restricted only for payment of the beneficial interests issued by the SPE. Additionally, creditors of the SPE have no direct recourse to PNC.

During the first quarter of 2012, the last series issued by the SPE, Series 2007-1, matured. At December 31,2014, the SPE continued to exist and we consolidated the entity as we continued to be the primary beneficiary of the SPE through our holding of seller’s interest and our role as the primary servicer.

Tax Credit Investments and Other

We make certain equity investments in various tax credit limited partnerships or limited liability companies (LLCs). The purpose of these investments is to achieve a satisfactory return on capital and to assist us in achieving goals associated with the Community Reinvestment Act.

Also, we are a national syndicator of affordable housing equity. In these syndication transactions, we create funds in which our subsidiaries are the general partner or managing member and sell limited partnership or non-managing member interests to third parties. In some cases PNC may also purchase a limited partnership or non-managing member interest in the fund. The purpose of this business is to generate income from the syndication of these funds, generate servicing fees by managing the funds, and earn tax credits to reduce our tax liability. General partner or managing member activities include identifying, evaluating, structuring, negotiating, and closing the fund investments in operating limited partnerships or LLCs, as well as oversight of the ongoing operations of the fund portfolio.

Typically, the general partner or managing member will be the party that has the right to make decisions that will most significantly impact the economic performance of the entity. However, certain partnership or LLC agreements provide the limited partner or non-managing member the ability to remove the general partner or managing member without cause. This results in the limited partner or non-managing member being the party that has the right to make decisions that will most significantly impact the economic performance of the entity. The primary sources of benefits for these investments are the tax credits and passive losses which reduce our tax liability. We have consolidated investments in which we have the power to direct the activities that most significantly impact the entity’s performance, and have an obligation to absorb expected losses or receive benefits that could be potentially significant. The assets are primarily included in Equity investments and Other assets on our Consolidated Balance Sheet with the liabilities classified in Other borrowed funds, Accrued expenses, and Other liabilities and the third-party investors’ interests included in the Equity section as Noncontrolling interests. Neither creditors nor equity investors in these investments have any recourse to our general credit. The consolidated assets and liabilities of these investments are provided in Table 58and are reflected in the “Other” business segment.

For tax credit investments in which we do not have the right to make decisions that will most significantly impact the economic performance of the entity, we are not the primary beneficiary and thus they are not consolidated. These investments are disclosed in Table 59. The table also reflects our maximum exposure to loss exclusive of any potential tax credit recapture. Our maximum exposure to loss is equal to our legally binding equity commitments adjusted for recorded impairment, partnership results, or amortization for qualifying low income housing tax credit investments when applicable. For all legally binding unfunded equity commitments, we increase our recognized investment and recognize a liability. As of December 31,2014, we had a liability of $441 million related to investments in qualified affordable housing projectswhich is reflected in Other liabilities on our Consolidated Balance Sheet.

Table 59also includes our involvement in lease financing transactions with LLCs engaged in solar power generation that to a large extent provided returns in the form of tax credits. The outstanding financings and operating lease assets are reflected as Loans and Other assets, respectively, on our Consolidated Balance Sheet, whereas related liabilities are reported in Deposits and Other liabilities.

Residential and Commercial Mortgage-Backed Securitizations

In connection with each Agency and Non-agency securitization discussed above, we evaluate each SPE utilized in these transactions for consolidation. In performing these assessments, we evaluate our level of continuing involvement in these transactions as the nature of our involvement ultimately determines whether or not we hold a variable interest and/or are the primary beneficiary of the SPE. Factors we consider in our consolidation assessment include the significance of (i) our role as servicer, (ii) our holdings of mortgage-backed securities issued by the securitization SPE, and (iii) the rights of third-party variable interest holders.

The first step in our assessment is to determine whether we hold a variable interest in the securitization SPE. We hold variable interests in Agency and Non-agency securitization SPEs through our holding of mortgage-backed securities issued by the SPEs and/or our recourse obligations. Each SPE in which we hold a variable interest is evaluated to determine whether we are the primary beneficiary of the entity. For Agency securitization transactions, our contractual role as servicer does not give us the power to direct the activities that most significantly affect the economic performance of the SPEs. Thus, we are not the primary beneficiary of these entities. For Non-agency securitization transactions, we would be the primary beneficiary to the extent our servicing activities give us the power to direct the activities that most significantly affect the economic performance of the SPE and we hold a more than insignificant variable interest in the entity.

Details about theAgency and Non-agency securitization SPEs where we hold a variable interest and are not the primary beneficiary are included in Table 59. Our maximum exposure to loss as a result of our involvement with these SPEs is the carrying value of the mortgage-backed securities, servicing assets, servicing advances, and our liabilities associated with our recourse obligations. Creditors of the securitization SPEs have no recourse to PNC’s assets or general credit.