Transfers and Servicing of Mortgage Loans

9 Months Ended

Sep. 30, 2013

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 12, “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 was $228.0 billion and $183.7 billion as of September 30, 2013 and December 31, 2012, respectively.  The increase in the total servicing portfolio relates to the assumption of a subservicing portfolio in 2013.

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:

	Nine Months Ended
	September 30,
	2013		2012
	(In millions)
Balance, beginning of period	$	140,381	$	147,088
Additions	19,031		24,794
Payoffs, sales and curtailments	(28,254)		(27,102)
Balance, end of period	$	131,158	$	144,780

The activity in capitalized MSRs consisted of:

	Nine Months Ended
	September 30,
	2013		2012
	(In millions)
Balance, beginning of period	$	1,022	$	1,209
Additions	209		244
Changes in fair value due to:
Realization of expected cash flows	(220)		(199)
Changes in market inputs or assumptions used in the valuation model	226		(252)
Balance, end of period	$	1,237	$	1,002

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				Nine Months Ended
	September 30,				September 30,
	2013		2012		2013		2012
	(In millions)
Servicing fees from capitalized portfolio	$	95	$	106	$	294	$	329
Late fees	5		5		14		15
Other ancillary servicing revenue	12		10		31		30

As of September 30, 2013 and December 31, 2012, the MSRs had a weighted-average life of approximately 5.8 years and 4.3 years, respectively.  See Note 15, “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:

	Nine Months Ended
	September 30,
	2013		2012
	(In millions)
Proceeds from new loan sales or securitizations	$	19,401	$	25,895
Servicing fees from capitalized portfolio(1)	294		329
Other cash flows on retained interests (2)	—		5
Purchases of delinquent or foreclosed loans (3)	(50)		(70)
Servicing advances (4)	(1,003)		(975)
Repayment of servicing advances	946		942

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(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 September 30, 2013 and December 31, 2012, outstanding servicing advance receivables related to our total servicing portfolio of $536 million and $293 million, respectively, were included in Accounts receivable, net.

During the three and nine months ended September 30, 2013, pre-tax gains of $214 million and $642 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.

During the three and nine months ended September 30, 2012, pre-tax gains of $263 million and $689 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.