Annual report pursuant to Section 13 and 15(d)

Mortgage Servicing Rights (Tables)

v3.3.1.900
Mortgage Servicing Rights (Tables)
 12 Months Ended
Dec. 31, 2015
Transfers and Servicing [Abstract]  
Activity for Residential First Mortgage MSRs
The table below presents activity for residential mortgage and home equity MSRs for 2015 and 2014.
 
 
 
 
Rollforward of Mortgage Servicing Rights
 
 
 
 
(Dollars in millions)
2015
 
2014
Balance, January 1
$
3,530

 
$
5,042

Additions
637

 
707

Sales
(393
)
 
(61
)
Amortization of expected cash flows (1)
(874
)
 
(927
)
Impact of changes in interest rates and other market factors (2)
41

 
(1,191
)
Model and other cash flow assumption changes: (3)
 

 
 

Projected cash flows, including changes in costs to service loans
100

 
(163
)
Impact of changes in the Home Price Index
(13
)
 
(25
)
Impact of changes to the prepayment model
(10
)
 
243

Other model changes (4)
69

 
(95
)
Balance, December 31 (5)
$
3,087

 
$
3,530

Mortgage loans serviced for investors (in billions)
$
394

 
$
490

(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) 
These amounts include the impact of periodic recalibrations of the model to reflect changes in the relationship between market interest rate spreads and projected cash flows. Also included is a decrease of $127 million for 2014 due to changes in option-adjusted spread rate assumptions.
(5) 
At December 31, 2015, includes $2.7 billion of U.S. and $407 million of non-U.S. consumer MSR balances compared to $3.3 billion and $259 million at December 31, 2014.
Assumption for Fair Value of MSRs
Significant economic assumptions in estimating the fair value of MSRs at December 31, 2015 and 2014 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
 
 
 
 
 
 
 
 
 
December 31
 
2015
 
2014
 
Fixed
 
Adjustable
 
Fixed
 
Adjustable
Weighted-average OAS
4.62
%
 
7.61
%
 
4.52
%
 
7.61
%
Weighted-average life, in years
4.46

 
3.43

 
4.53

 
2.95

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
 
 
 
 
 
 
 
 
 
December 31, 2015
 
Change in
Weighted-average Lives
 
 
(Dollars in millions)
Fixed
 
Adjustable
 
Change in Fair Value
Prepayment rates
 

 
 
 

 
 
 

Impact of 10% decrease
0.30

years
 
0.26

years
 
$
183

Impact of 20% decrease
0.64

 
 
0.55

 
 
389

 
 
 
 
 
 
 
 
Impact of 10% increase
(0.26
)
 
 
(0.23
)
 
 
(163
)
Impact of 20% increase
(0.50
)
 
 
(0.43
)
 
 
(310
)
OAS level
 

 
 
 

 
 
 

Impact of 100 bps decrease
 
 
 
 
 
 
$
124

Impact of 200 bps decrease
 
 
 
 
 
 
259

 
 
 
 
 
 
 
 
Impact of 100 bps increase
 
 
 
 
 
 
(115
)
Impact of 200 bps increase
 
 
 
 
 
 
(221
)