Wells Fargo 2013 Annual Report Download - page 238

Note 17: Fair Values of Assets and Liabilities (continued)
Fair Value Option
We measure MHFS at fair value for MHFS originations for
which an active secondary market and readily available market
prices exist to reliably support fair value pricing models used for
these loans. Loan origination fees on these loans are recorded
when earned, and related direct loan origination costs are
recognized when incurred. We also measure at fair value certain
of our other interests held related to residential loan sales and
securitizations. We believe fair value measurement for MHFS
and other interests held, which we hedge with free-standing
derivatives (economic hedges) along with our MSRs measured at
fair value, reduces certain timing differences and better matches
changes in the value of these assets with changes in the value of
derivatives used as economic hedges for these assets.
We elected to measure certain LHFS portfolios at fair value
in conjunction with customer accommodation activities, to
better align the measurement basis of the assets held with our
management objectives given the trading nature of these
portfolios. In addition, we elected to measure at fair value
certain letters of credit and nonmarketable equity securities that
are hedged with derivative instruments to better reflect the
economics of the transactions. The letters of credit are included
in trading account assets or liabilities, and the nonmarketable
equity securities are included in other assets.
Loans that we measure at fair value consist predominantly of
reverse mortgage loans previously transferred under a GNMA
reverse mortgage securitization program accounted for as a
secured borrowing. Before the transfer, they were classified as
MHFS measured at fair value and, as such, remain carried on
our balance sheet under the fair value option.
Similarly, we may elect fair value option for the assets and
liabilities of certain consolidated VIEs. This option is generally
elected for newly consolidated VIEs for which predominantly all
of our interests, prior to consolidation, are carried at fair value
with changes in fair value recorded to earnings. Accordingly,
such an election allows us to continue fair value accounting
through earnings for those interests and eliminate income
statement mismatch otherwise caused by differences in the
measurement basis of the consolidated VIEs assets and
liabilities.
The following table reflects the differences between fair value
carrying amount of certain assets and liabilities for which we
have elected the fair value option and the contractual aggregate
unpaid principal amount at maturity.
December 31, 2013 December 31, 2012
(in millions)
Fair value
carrying
amount
Aggregate
unpaid
principal
Fair value
carrying
amount
less
aggregate
unpaid
principal
Fair value
carrying
amount
Aggregate
unpaid
principal
Fair value
carrying
amount
less
aggregate
unpaid
principal
Mortgages held for sale:
Total loans $ 13,879 13,966 (87) (1) 42,305 41,183 1,122 (1)
Nonaccrual loans 205 359 (154) 309 655 (346)
Loans 90 days or more past due and still accruing 39 46 (7) 49 64 (15)
Loans held for sale:
Total loans 1 9 (8) 6 10 (4)
Nonaccrual loans 1 9 (8) 2 6 (4)
Loans:
Total loans 5,995 5,674 321 6,206 5,669 537
Nonaccrual loans 188 188 - 89 89 -
Other assets (2) 1,386 n/a n/a -n/a n/a
Long-term debt - (199) 199 (3) (1) (1,157) 1,156 (3)
(1) The difference between fair value carrying amount and aggregate unpaid principal includes changes in fair value recorded at and subsequent to funding, gains and losses on
the related loan commitment prior to funding, and premiums on acquired loans.
(2) Consists of nonmarketable equity investments carried at fair value. See Note 7 for more information.
(3) Represents collateralized, non-recourse debt securities issued by certain of our consolidated securitization VIEs that are held by third party investors. To the extent cash
flows from the underlying collateral are not sufficient to pay the unpaid principal amount of the debt, those third party investors absorb losses.
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