Transfers and Servicing of Mortgage Loans

3 Months Ended

Mar. 31, 2012

Transfers and Servicing of Mortgage Loans

Transfers and Servicing of Mortgage Loans

4.  Transfers and Servicing of Mortgage Loans

Residential mortgage loans are sold through one of the following methods: (i) sales to or pursuant to programs sponsored by Fannie Mae, Freddie Mac and Ginnie Mae, or (ii) sales to private investors. The Company may have continuing involvement in mortgage loans sold by retaining one or more of the following: servicing rights and servicing obligations, recourse obligations and/or beneficial interests (such as interest-only strips, principal-only strips, or subordinated interests).  See Note 9, “Credit Risk” for a further description of recourse obligations.

The total servicing portfolio consists of loans associated with capitalized mortgage servicing rights, loans held for sale, and the servicing portfolio associated with loans subserviced for others.  The total servicing portfolio, including loans subserviced for others was $184.9 billion and $182.4 billion as of March 31, 2012 and December 31, 2011, respectively.  Mortgage servicing rights (“MSRs”) recorded in the Condensed Consolidated Balance Sheets are related to the capitalized servicing portfolio, and are created either through the direct purchase of servicing from a third party, or through the sale of an originated loan.

The activity in the loan servicing portfolio associated with capitalized servicing rights consisted of:

	Three Months Ended
	March 31,
	2012			2011
	(In millions)
Balance, beginning of period	$	147,088		$	134,753
Additions	10,794			12,347
Payoffs, sales and curtailments	(8,227		)	(6,023		)
Balance, end of period	$	149,655		$	141,077

The activity in capitalized MSRs consisted of:

	Three Months Ended
	March 31,
	2012			2011
	(In millions)
Balance, beginning of period	$	1,209		$	1,442
Additions	108			180
Changes in fair value due to:
Realization of expected cash flows	(64		)	(60		)
Changes in market inputs or assumptions used in the valuation model	43			28
Balance, end of period	$	1,296		$	1,590

The value of MSRs is driven by the net positive cash flows associated with servicing activities.  These cash flows include contractually specified servicing fees, late fees and other ancillary servicing revenue and were recorded within Loan servicing income as follows:

	Three Months Ended
	March 31,
	2012		2011
	(In millions)
Servicing fees from capitalized portfolio	$	112	$	106
Late fees	5		6
Other ancillary servicing revenue	12		11

As of March 31, 2012 and December 31, 2011, the MSRs had a weighted-average life of approximately 5.1 years and 4.2 years, respectively.  See Note 12, “Fair Value Measurements” for additional information regarding the valuation of MSRs.

The following table sets forth information regarding cash flows relating to loan sales in which the Company has continuing involvement:

	Three Months Ended
	March 31,
	2012			2011
	(In millions)
Proceeds from new loan sales or securitizations	$	11,220		$	12,306
Servicing fees from capitalized portfolio(1)	112			106
Other cash flows on retained interests (2)	5			—
Purchases of delinquent or foreclosed loans (3)	(16		)	(9		)
Servicing advances (4)	(361		)	(436		)
Repayment of servicing advances	359			426

(1)Excludes late fees and other ancillary servicing revenue.

(2)Represents cash flows received on retained interests other than servicing fees.

(3)Excludes indemnification payments to investors and insurers of the related mortgage loans.

(4)As of March 31, 2012 and December 31, 2011, outstanding servicing advance receivables of $252 million and $247 million, respectively, were included in Accounts receivable, net.

During the three months ended March 31, 2012 and 2011, pre-tax gains of $228 million and $178 million, respectively, related to the sale or securitization of residential mortgage loans were recognized in Gain on mortgage loans, net in the Condensed Consolidated Statements of Operations.