Annual report pursuant to Section 13 and 15(d)

Mortgage Servicing Rights

v3.6.0.2
Mortgage Servicing Rights
 12 Months Ended
Dec. 31, 2016
Transfers and Servicing [Abstract]  
Mortgage Servicing Rights
Mortgage Servicing Rights
The Corporation accounts for consumer MSRs at fair value, with changes in fair value primarily recorded in mortgage banking income in the Consolidated Statement of Income. The Corporation manages the risk in these MSRs with derivatives such as options and interest rate swaps, which are not designated as accounting hedges, as well as securities including MBS and U.S. Treasury securities. The securities used to manage the risk in the MSRs are classified in other assets, with changes in the fair value of the securities and the related interest income recorded in mortgage banking income.
The table below presents activity for residential mortgage and home equity MSRs for 2016 and 2015.
 
 
 
 
Rollforward of Mortgage Servicing Rights
 
 
 
 
(Dollars in millions)
2016
 
2015
Balance, January 1
$
3,087

 
$
3,530

Additions
411

 
637

Sales
(80
)
 
(393
)
Amortization of expected cash flows (1)
(820
)
 
(874
)
Changes in fair value due to changes in inputs and assumptions (2)
149

 
187

Balance, December 31 (3)
$
2,747

 
$
3,087

Mortgage loans serviced for investors (in billions)
$
326

 
$
394

(1) 
Represents the net change in fair value of the MSR asset due to the recognition of modeled cash flows and the passage of time.
(2) 
These amounts reflect the changes in modeled MSR fair value due to observed changes in interest rates, volatility, spreads, and the shape of the forward swap curve; periodic adjustments to valuation based on third-party price discovery; and periodic adjustments to the valuation model and other cash flow assumptions.
(3) 
At December 31, 2016, includes the $2.1 billion core MSR portfolio held in Consumer Banking, the $212 million non-core MSR portfolio held in All Other and the $469 million non-U.S. MSR portfolio held in Global Markets compared to $2.3 billion, $355 million and $407 million at December 31, 2015, respectively.
The Corporation revised certain MSR valuation assumptions during 2016, resulting in a net $306 million increase in fair value, which is included within “Changes in fair value due to changes in inputs and assumptions” in the table above. The increase was primarily driven by changes in prepayment assumptions based on recent observed differences between modeled and actual prepayment behavior, which had the impact of slowing the weighted-average rate of projected prepayments, thus increasing both the weighted-average life of the MSRs and the yield that a market participant would require to buy the MSR.