Quarterly report pursuant to Section 13 or 15(d)

Mortgage Servicing Rights (Tables)

v3.5.0.2
Mortgage Servicing Rights (Tables)
6 Months Ended
Jun. 30, 2016
Transfers and Servicing [Abstract]  
Activity for Residential First Mortgage MSRs
The table below presents activity for residential mortgage and home equity MSRs for the three and six months ended June 30, 2016 and 2015.

Rollforward of Mortgage Servicing Rights
 
 
 
 
 
 
 
 
Three Months Ended
June 30
 
Six Months Ended
June 30
(Dollars in millions)
2016
 
2015
 
2016
 
2015
Balance, beginning of period
$
2,631

 
$
3,394

 
$
3,087

 
$
3,530

Additions
72

 
204

 
208

 
383

Sales
(1
)
 
(312
)
 
(2
)
 
(312
)
Amortization of expected cash flows (1)
(205
)
 
(223
)
 
(416
)
 
(453
)
Impact of changes in interest rates and other market factors (2)
(243
)
 
468

 
(619
)
 
292

Model and other cash flow assumption changes (3)
15

 
(10
)
 
11

 
81

Balance, June 30 (4)
$
2,269

 
$
3,521

 
$
2,269

 
$
3,521

Mortgage loans serviced for investors (in billions)
$
371

 
$
425

 
$
371

 
$
425

(1) 
Represents the net change in fair value of the MSR asset due to the recognition of modeled cash flows.
(2) 
These amounts reflect the changes in modeled MSR fair value primarily due to observed changes in interest rates, volatility, spreads and the shape of the forward swap curve and periodic adjustments to valuation based on third-party discovery.
(3) 
These amounts reflect periodic adjustments to the valuation model to reflect changes in the modeled relationship between inputs and their impact on projected cash flows as well as changes in certain cash flow assumptions such as cost to service and ancillary income per loan.
(4) 
At June 30, 2016, includes $1.8 billion of U.S. and $481 million of non-U.S. consumer MSR balances compared to $3.2 billion and $320 million at June 30, 2015.

Assumption for Fair Value of MSRs
Significant economic assumptions in estimating the fair value of MSRs at June 30, 2016 and December 31, 2015 are presented below. The change in fair value as a result of changes in OAS rates is included within "Model and other cash flow assumption changes" in the Rollforward of Mortgage Servicing Rights table. The weighted-average life is not an input in the valuation model but is a product of both changes in market rates of interest and changes in model and other cash flow assumptions. The weighted-average life represents the average period of time that the MSRs' cash flows are expected to be received. Absent other changes, an increase (decrease) to the weighted-average life would generally result in an increase (decrease) in the fair value of the MSRs.

Significant Economic Assumptions
 
June 30, 2016
 
December 31, 2015
 
Fixed
 
Adjustable
 
Fixed
 
Adjustable
Weighted-average OAS
4.88
%
 
7.85
%
 
4.62
%
 
7.61
%
Weighted-average life, in years
3.38

 
3.05

 
4.46

 
3.43

Sensitivity of the Weighted-Average Lives and Fair Value of MSRs
The table below presents the sensitivity of the weighted-average lives and fair value of MSRs to changes in modeled assumptions. These sensitivities are hypothetical and should be used with caution. As the amounts indicate, changes in fair value based on variations in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of MSRs that continue to be held by the Corporation is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another, which might magnify or counteract the sensitivities. The below sensitivities do not reflect any hedge strategies that may be undertaken to mitigate such risk.

Sensitivity Impacts
 
June 30, 2016
 
Change in Weighted-average Lives
 
 
(Dollars in millions)
Fixed
 
Adjustable
 
Change in
Fair Value
Prepayment rates
 
 
 
 
 
 
 
 
 
Impact of 10% decrease
0.29

 
years
 
0.23

 
years
 
$
175

Impact of 20% decrease
0.63

 
 
 
0.49

 
 
 
377

 
 
 
 
 
 
 
 
 
 
Impact of 10% increase
(0.25
)
 
 
 
(0.20
)
 
 
 
(152
)
Impact of 20% increase
(0.47
)
 
 
 
(0.38
)
 
 
 
(286
)
OAS level
 
 
 
 
 
 
 
 
 
Impact of 100 bps decrease
 
 
 
 
 
 
 
 
$
79

Impact of 200 bps decrease
 
 
 
 
 
 
 
 
165

 
 
 
 
 
 
 
 
 
 
Impact of 100 bps increase
 
 
 
 
 
 
 
 
(74
)
Impact of 200 bps increase
 
 
 
 
 
 
 
 
(142
)