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Residential real estate loans declined because most of the new loans originated by Key over the past twelve months were originated for sale. Additionally, low interest rates led to an increase in mortgage prepayment activity. 

Excluding loan sales and acquisitions, consumer loans would have increased by $1.2 billion, or 5%, during the past twelve months. 

The home equity portfolio is by far the largest segment of Key’s consumer loan portfolio. Key’s home equity portfolio is derived primarily from our Retail Banking line of business (53% of the home equity portfolio at December 31, 2003) and the National Home Equity unit within our Consumer Finance line of business. 

The National Home Equity unit has two components: Champion Mortgage Company, a home equity finance company, and Key Home Equity Services, which purchases individual loans from an extensive network of correspondents and brokers. Prior to the third quarter of 2002, Key Home Equity Services also purchased loans through bulk portfolio acquisitions from home equity loan companies. 

Figure 16 summarizes Key’s home equity loan portfolio at December 31 for each of the last five years, as well as certain asset quality statistics and yields on the portfolio as a whole. 

Sales and securitizations. During 2003, Key sold $1.7 billion of commercial real estate loans, $1.2 billion of education loans ($998 million through securitizations), $815 million of home equity loans, $671 million of residential real estate loans and $312 million of commercial loans. 

Among the factors that Key considers in determining which loans to securitize are: 

• whether the characteristics of a specific loan portfolio make it conducive to securitization; 

• the relative cost of funds; 

• the level of credit risk; and 

• capital requirements. 

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Figure 17 summarizes Key’s loan sales (including securitizations) for 2003 and 2002. 

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