|6 Months Ended|
Jun. 30, 2009
|Note 14. Loan Servicing
NOTE 14. Loan Servicing
BB&T has two classes of mortgage servicing rights for which it separately manages the economic risks: residential and commercial. Commercial mortgage servicing rights are recorded as other assets on the Consolidated Balance Sheets at lower of cost or market and amortized in proportion to and over the estimated period that net servicing income is expected to be received based on projections of the amount and timing of estimated future net cash flows. Residential mortgage servicing rights are recorded on the Consolidated Balance Sheets at fair value with changes in fair value recorded as a component of mortgage banking income in the Consolidated Statements of Income for each period. BB&T uses various derivative instruments to mitigate the income statement effect of changes in fair value, due to changes in valuation inputs and assumptions, of its residential mortgage Servicing rights. The following is an analysis of the activity in BB&T’s residential mortgage servicing rights for the six month periods ended June 30, 2009 and 2008:
(1) Represents the realization of expected net servicing cash flows, expected borrower payments and the passage of time.
BB&T uses assumptions and estimates in determining the fair value of capitalized mortgage servicing rights. These assumptions include prepayment speeds, servicing costs and Option Adjusted Spread (“OAS”) commensurate with the risks involved and comparable to assumptions used by market participants to value and bid servicing rights available for sale in the market. At June 30, 2009, the weighted average life was 4.3 years, the prepayment speed was 18.7% and the OAS was 3.6%.
principal balances of BB&T’s total residential mortgage
servicing portfolio were $66.5 billion and $59.7 billion at
June 30, 2009 and December 31, 2008, respectively. The
unpaid principal balances of residential mortgage loans
serviced for others consist primarily of agency conforming
fixed-rate mortgage loans and totaled $46.8 billion and
$40.7 billion at June 30, 2009 and December 31, 2008,
respectively. Mortgage loans serviced for others are not
included in loans on the accompanying Consolidated Balance
Sheets. BB&T recognized servicing fees of $87 million
and $68 million during the first six months of 2009 and
2008, respectively, as a component of mortgage banking
At June 30, 2009 and 2008, the approximate weighted average servicing fee was .38% and .37%, respectively, of the outstanding balance of the residential mortgage loans. The weighted average coupon interest rate on the portfolio of mortgage loans serviced for others was 5.74% and 5.98% at June 30, 2009 and 2008, respectively.
BB&T has sold certain mortgage-related loans that contain recourse provisions. These provisions generally require BB&T to reimburse the investor for a share of any loss that is incurred after the disposal of the property. At June 30, 2009 and December 31, 2008, BB&T had $2.2 billion and $2.5 billion, respectively, of residential mortgage loans sold with recourse. In the event of nonperformance by the borrower, BB&T has maximum recourse exposure of approximately $670 million and $745 million as of June 30, 2009 and December 31, 2008, respectively. At June 30, 2009, BB&T has recorded $4 million of reserves related to these recourse exposures.
The Company also has securitized residential mortgage loans and retained the resulting securities available for sale. As of June 30, 2009, the fair value of the securities available for sale still owned by BB&T was $286 million and the remaining unpaid principal balance of the underlying loans totaled $277 million. Based on the performance of the underlying loans and general liquidity of the securities, the Company’s recovery of the cost basis in the securities has not been significantly impacted by changes in interest rates, prepayment speeds or credit losses.
BB&T also arranges and services commercial real estate mortgages through Grandbridge Real Estate Capital, LLC (“Grandbridge”) the commercial mortgage banking subsidiary of Branch Bank. During the six months ended June 30, 2009 and 2008, Grandbridge originated $1.3 billion and $2.0 billion, respectively, of commercial real estate mortgages, all of which were arranged for third party investors and serviced by Grandbridge. As of June 30, 2009 and December 31, 2008, Grandbridge’s portfolio of commercial real estate mortgages serviced for others totaled $24.8 billion and $23.9 billion, respectively. Commercial real estate mortgage loans serviced for others are not included in loans on the accompanying Consolidated Balance Sheets. Grandbridge had $3.9 billion and $3.3 billion in loans serviced for others that were covered by loss sharing agreements at June 30, 2009 and December 31, 2008, respectively. As of June 30, 2009 and December 31, 2008, Grandbridge’s maximum exposure to loss for these loans is approximately $993 million and $818 million, respectively. BB&T has recorded $11 million of reserves related to these recourse exposures at June 30, 2009. Mortgage servicing rights related to commercial mortgage loans totaled $104 million and $98 million at June 30, 2009 and December 31, 2008, respectively.