Wells Fargo 2010 Annual Report Download - page 193

Fair Value Option
We measure MHFS at fair value for prime 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
prime 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.
Upon the acquisition of Wachovia, we elected to measure at
fair value certain portfolios of LHFS that we intend to hold for
trading purposes and that may be economically hedged with
derivative instruments. In addition, we elected to measure at fair
value certain letters of credit that are hedged with derivative
instruments to better reflect the economics of the transactions.
These letters of credit are included in trading account assets or
liabilities.
Upon the adoption of new consolidation guidance on January
1, 2010, we elected to measure at fair value the eligible assets
(loans) and liabilities (long-term debt) of certain nonconforming
mortgage loan securitization VIEs. We elected the fair value
option for such newly consolidated VIEs to continue fair value
accounting as our interests prior to consolidation were
predominantly carried at fair value with changes in fair value
recognized in earnings.
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.
Dec. 31, 2010
Dec. 31, 2009
Fair value Fair value
carrying carrying
amount amount
less less
Fair value Aggregate aggregate Fair value Aggregate aggregate
carrying unpaid unpaid carrying unpaid unpaid
(in millions) amount principal principal amount principal principal
Mortgages held for sale:
Total loans $ 47,531 47,818 (287) (1) 36,962 37,072 (110) (1)
Nonaccrual loans 325 662 (337) 268 560 (292)
Loans 90 days or more past due and still accruing 38 47 (9) 49 63 (14)
Loans held for sale:
Total loans 873 897 (24) 149 159 (10)
Nonaccrual loans 1 7 (6) 5 2 3
Loans:
Total loans 309 348 (39) - - -
Nonaccrual loans 13 16 (3) - - -
Loans 90 days or more past due and still accruing 2 2 - - - -
Long-term debt 306 353 (47) - - -
(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.
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