Wells Fargo 2013 Annual Report Download - page 232

Note 17: Fair Values of Assets and Liabilities (continued)
($ in millions, except cost to service amounts)
Fair Value
Level 3 Valuation Technique(s)
Significant
Unobservable Input
Range of
Inputs
Weighted
Average (1)
December 31, 2012
Trading and available-for-sale securities:
Securities of U.S. states and
political subdivisions:
Government, healthcare and
other revenue bonds $ 3,081 Discounted cash flow Discount rate 0.5 - 4.8 % 1.8
Auction rate securities and other municipal bonds 596 Discounted cash flow Discount rate 2.0 - 12.9 4.4
Weighted average life 3.0 - 7.5 yrs 3.4
Collateralized loan and other debt obligations(2) 1,423 Market comparable pricing Comparability adjustment (22.5) - 24.7 % 3.5
12,507 Vendor priced
Asset-backed securities:
Auto loans and leases 5,921 Discounted cash flow Default rate 2.1 -9.7 3.2
Discount rate 0.6 -1.6 1.0
Loss severity 50.0 -66.6 51.8
Prepayment rate 0.6 -0.9 0.7
Other asset-backed securities:
Dealer floor plan 1,030 Discounted cash flow Discount rate 0.5 -2.2 1.9
Diversified payment rights (3) 639 Discounted cash flow Discount rate 1.0 -2.9 1.8
Other commercial and consumer 1,665 (4) Discounted cash flow Discount rate 0.6 -6.8 2.7
Weighted average life 1.0 -7.5 yrs 2.9
87 Vendor priced
Marketable equity securities: perpetual
preferred 794 (5) Discounted cash flow Discount rate 4.3 -9.3 % 6.3
Weighted average life 1.0 -7.0 yrs 5.3
Mortgages held for sale (residential) 3,250 Discounted cash flow Default rate 0.6 -14.8 % 5.5
Discount rate 3.4 -7.5 5.4
Loss severity 1.3 - 35.3 26.4
Prepayment rate 1.0 - 11.0 6.2
Loans 6,021 (6) Discounted cash flow Discount rate 2.4 -2.8 2.6
Prepayment rate 1.6 -44.4 11.6
Utilization rate 0.0 -2.0 0.8
Mortgage servicing rights (residential) 11,538 Discounted cash flow Cost to service per loan (7) $ 90 - 854 219
Discount rate 6.7 - 10.9 % 7.4
Prepayment rate (8) 7.3 - 23.7 15.7
Net derivative assets and (liabilities):
Interest rate contracts 162 Discounted cash flow Default rate 0.0 - 20.0 5.4
Loss severity 45.8 - 83.2 51.6
Prepayment rate 7.4 - 15.6 14.9
Interest rate contracts: derivative loan
commitments 497 Discounted cash flow Fall-out factor 1.0 - 99.0 22.9
Initial-value servicing (13.7) - 137.2 bps 85.6
Equity contracts (122) Option model Correlation factor (43.6) - 94.5 % 50.3
Volatility factor 3.0 - 68.9 26.5
Credit contracts (1,157) Market comparable pricing Comparability adjustment (34.4) - 30.5 0.1
8 Option model Credit spread 0.1 - 14.0 2.0
Loss severity 16.5 - 87.5 52.3
Insignificant Level 3 assets,
net of liabilities 835 (9)
Total level 3 assets, net of liabilities $ 48,775 (10)
(1) Weighted averages are calculated using outstanding unpaid principal balance for cash instruments such as loans and securities, and notional amounts for derivative
instruments.
(2) Includes $665 million of collateralized debt obligations.
(3) Securities backed by specified sources of current and future receivables generated from foreign originators.
(4) Consists primarily of investments in asset-backed securities that are revolving in nature, in which the timing of advances and repayments of principal are uncertain.
(5) Consists of auction rate preferred equity securities with no maturity date that are callable by the issuer.
(6) Consists predominantly of reverse mortgage loans securitized with GNMA which were accounted for as secured borrowing transactions.
(7) The high end of the range of inputs is for servicing modified loans. For non-modified loans the range is $90 - $437.
(8) Includes a blend of prepayment speeds and expected defaults. Prepayment speeds are influenced by mortgage interest rates as well as our estimation of drivers of borrower
behavior.
(9) Represents the aggregate amount of Level 3 assets and liabilities measured at fair value on a recurring basis that are individually and in the aggregate insignificant. The
amount includes corporate debt securities, mortgage-backed securities, asset-backed securities backed by home equity loans, other marketable equity securities, other
assets, other liabilities and certain net derivative assets and liabilities, such as commodity contracts, foreign exchange contracts and other derivative contracts.
(10)Consists of total Level 3 assets of $51.9 billion and total Level 3 liabilities of $3.1 billion, before netting of derivative balances.
230