Bank of America Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Mortgage Servicing Rights (Tables)

Mortgage Servicing Rights (Tables)

12 Months Ended

Dec. 31, 2012

Activity for Residential First Mortgage MSRs

The table below presents activity for residential first-lien MSRs for 2012 and 2011. Commercial and residential reverse MSRs, which are carried at the lower of cost or market value and accounted for using the amortization method, totaled $135 million and $132 million at December 31, 2012 and 2011, and are not included in the tables in this Note.




Rollforward of Mortgage Servicing Rights

(Dollars in millions)	2012			2011
Balance, January 1	$	7,378		$	14,900
Additions	374			1,656
Sales	(122		)	(896		)
Impact of customer payments ⁽¹⁾	(1,484		)	(2,621		)
Impact of changes in interest rates and other market factors ⁽²⁾	(867		)	(4,890		)
Model and other cash flow assumption changes: ⁽³⁾
Projected cash flows, primarily due to (increases)decreases in costs to service loans ⁽⁴⁾	443			(2,306		)
Impact of changes in the Home Price Index	(112		)	428
Impact of changes to the prepayment model	435			1,818
Other model changes	(329		)	(711		)
Balance, December 31	$	5,716		$	7,378
Mortgage loans serviced for investors (in billions)	$	1,045		$	1,379


⁽¹⁾	Represents the change in the market value of the MSR asset due to the impact of customer payments received during the period.


⁽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.


⁽³⁾	These amounts reflect periodic adjustments to the valuation model as well as changes in certain cash flow assumptions such as cost to service and ancillary income per loan.

⁽⁴⁾

As part of the MSR fair value estimation process, the Corporation increased its estimated cost to service during 2011 due to higher costs expected from foreclosure delays and procedures, the implementation of various loan modification programs, and compliance with new banking regulations. During 2012, the Corporation has continued to refine its estimates of cost to service and ancillary income to be consistent with market participants’ view which resulted in a decrease to the estimated cost to service.

Assumption for Fair Value of MSRs

The significant economic assumptions used in determining the fair value of MSRs at December 31, 2012 and 2011 are presented below.




Significant Economic Assumptions

	December 31
	2012				2011
	Fixed		Adjustable		Fixed		Adjustable
Weighted-average OAS	4.00	%	6.63	%	2.80	%	5.61	%
Weighted-average life, in years	3.65		2.10		3.78		2.10

Sensitivity of the Weighted-Average Lives and Fair Values 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, 2012
	Change in Weighted-average Lives
(Dollars in millions)	Fixed			Adjustable			Change in Fair Value
Prepayment rates
Impact of 10% decrease	0.31		years	0.20		years	$	510
Impact of 20% decrease	0.67			0.43			1,094
Impact of 10% increase	(0.27	)		(0.17	)		(450		)
Impact of 20% increase	(0.51	)		(0.32	)		(849		)
OAS level
Impact of 100 bps decrease							$	256
Impact of 200 bps decrease							535
Impact of 100 bps increase							(237		)
Impact of 200 bps increase							(455		)

- Definition

Tabular disclosure of all information related to the key inputs and assumptions used in measuring the fair value of assets obtained or liabilities incurred, as the result of a sale of financial assets, relating to the transferor's continuing involvement, if any, at the time of securitization, asset-backed financing arrangement, or similar transfer (including at a minimum, but not limited to, and if applicable, quantitative information about discount rates, expected prepayments including the expected weighted-average life of prepayable financial assets, and anticipated credit losses, including expected static pool losses).

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- Definition

Tabular disclosure of a sensitivity analysis or stress test showing the hypothetical effect on the fair value of the transferor's interests in transferred financial assets (including any servicing assets or servicing liabilities) of two or more unfavorable variations from the expected levels for each key assumption that is reported, independently determined from any change in another key assumption, and a description of the objectives, methodology, and limitations of the sensitivity analysis or stress test.

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- Definition

Tabular disclosure of the activity in the balance of servicing assets (including a description of where changes in fair value are reported in the statement of income for each period for which results of operations are presented), including but not limited to, the following: beginning and ending balances, additions (for instance, through purchases of servicing assets), disposals, changes in fair value during the period resulting from changes in inputs or assumptions used in the valuation model, other changes in fair value along with a description of those changes, and other changes that affect the balance along with a description of those changes.

+ References + Details