Loan Servicing

9 Months Ended

Sep. 30, 2014

NOTE 5. Loan Servicing

Residential Mortgage Banking Activities

The following tables summarize residential mortgage banking activities. Mortgage and home equity loans managed or securitized exclude loans serviced for others with no other continuing involvement.

		September 30, 2014		December 31, 2013

		(Dollars in millions)
Mortgage loans managed or securitized		$	28,010	$	27,353
Home equity loans managed			7,150		8,329
Total mortgage and home equity loans managed or securitized			35,160		35,682
Less: Loans securitized and transferred to AFS securities			3		4
	LHFS		1,961		1,116
	Covered mortgage loans		699		802
	Mortgage loans sold with recourse		684		783
Mortgage loans held for investment		$	31,813	$	32,977

UPB of mortgage loan servicing portfolio		$	116,224	$	112,835
UPB of home equity loan servicing portfolio			7,202		8,321
UPB of residential mortgage and home equity loan servicing portfolio			123,426		121,156
UPB of residential mortgage loans serviced for others (primarily agency
	conforming fixed rate)		89,936		87,434
Maximum recourse exposure from mortgage loans sold with recourse liability			341		372
Indemnification, recourse and repurchase reserves			100		72
FHA-insured mortgage loan reserve			85		―

In June 2014, BB&T received a letter from the HUD-OIG stating that BB&T has been selected for an audit survey to assess BB&T's compliance with FHA requirements related to the origination of loans insured by the FHA. In addition, HUD-OIG will evaluate BB&T's compliance with FHA requirements related to the implementation of a quality control program associated with the origination of FHA-insured loans. While the outcome of the review process is unknown and the HUD-OIG has not asserted any claims, similar reviews and related matters with other financial institutions have resulted in cash settlements and other remedial actions. BB&T identified a potential exposure related to losses incurred by the FHA on defaulted loans that ranges from $25 million to $105 million and recognized an $85 million reserve during the nine months ended September 30, 2014. The income statement impact of this adjustment is included in Other expense on the Consolidated Statements of Income. The ultimate resolution of this matter is uncertain and the estimates of this exposure are subject to the application of significant judgment and therefore cannot be predicted with certainty at this time.

During the nine months ended September 30, 2014, BB&T also recognized a $33 million adjustment related to the indemnification reserves for mortgage loans sold, which represents an increase in estimated losses that may be incurred on FHA-insured mortgage loans that have not yet defaulted. The income statement impact of this adjustment is included in Loan-related expense on the Consolidated Statements of Income.

		As Of / For The
		Nine Months Ended September 30,
		2014			2013

		(Dollars in millions)
UPB of residential mortgage loans sold from the LHFS portfolio		$	9,693		$	23,056
Pre-tax gains recognized on mortgage loans sold and held for sale			72			267
Servicing fees recognized from mortgage loans serviced for others			206			192
Approximate weighted average servicing fee on the outstanding balance of
	residential mortgage loans serviced for others		0.29	%		0.30	%
Weighted average interest rate on mortgage loans serviced for others			4.22			4.24

			Nine Months Ended September 30,
				2014		2013

			(Dollars in millions)
Residential MSRs, carrying value, January 1,			$	1,047	$	627
	Additions			105		269
	Change in fair value due to changes in valuation inputs or assumptions:
		Prepayment speeds		(125)		244
		Weighted average OAS		8		(48)
		Servicing costs		―		(21)
	Realization of expected net servicing cash flows, passage of time and other			(92)		(115)
Residential MSRs, carrying value, September 30,			$	943	$	956

Gains (losses) on derivative financial instruments used to mitigate the
	income statement effect of changes in fair value		$	128	$	(149)

The sensitivity of the fair value of the residential MSRs to changes in key assumptions is included in the accompanying table:

			September 30, 2014							December 31, 2013
			Range				Weighted			Range				Weighted
			Min		Max		Average			Min		Max		Average

			(Dollars in millions)
Prepayment speed			8.7	%	10.6	%		9.8	%	5.5	%	8.0	%		6.9	%
	Effect on fair value of a 10% increase						$	(31)						$	(33)
	Effect on fair value of a 20% increase							(60)							(64)

OAS			8.8	%	9.6	%		9.0	%	9.1	%	9.9	%		9.3	%
	Effect on fair value of a 10% increase						$	(30)						$	(39)
	Effect on fair value of a 20% increase							(58)							(75)

Composition of loans serviced for others:
	Fixed-rate residential mortgage loans							99.6	%						99.7	%
	Adjustable-rate residential mortgage loans							0.4							0.3
		Total						100.0	%						100.0	%

Weighted average life								6.4	yrs						7.9	yrs

The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. As indicated, changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in the above table, the effect of an adverse variation in a particular assumption on the fair value of the MSRs is calculated without changing any other assumption; while in reality, changes in one factor may result in changes in another, which may magnify or counteract the effect of the change.

Commercial Mortgage Banking Activities

CRE mortgage loans serviced for others are not included in loans and leases on the accompanying Consolidated Balance Sheets. The following table summarizes commercial mortgage banking activities for the periods presented:

		September 30,		December 31,
		2014		2013

		(Dollars in millions)
UPB of CRE mortgages serviced for others		$	27,739	$	28,095
CRE mortgages serviced for others covered by recourse provisions			4,566		4,594
Maximum recourse exposure from CRE mortgages
	sold with recourse liability		1,317		1,320
Recorded reserves related to recourse exposure			9		9
Originated CRE mortgages during the period - year to date			3,588		4,881