Quarterly report pursuant to Section 13 or 15(d)

Mortgage Servicing Rights (Tables)

v2.4.0.8
Mortgage Servicing Rights (Tables)
 9 Months Ended
Sep. 30, 2014
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 nine months ended September 30, 2014 and 2013.

Rollforward of Mortgage Servicing Rights
 
 
 
 
 
 
 
 
Three Months Ended
September 30
 
Nine Months Ended
September 30
(Dollars in millions)
2014
 
2013
 
2014
 
2013
Balance, beginning of period
$
4,368

 
$
5,827

 
$
5,042

 
$
5,716

Additions
203

 
129

 
581

 
399

Sales
(1
)
 
(729
)
 
(47
)
 
(1,774
)
Amortization of expected cash flows (1)
(232
)
 
(240
)
 
(699
)
 
(814
)
Impact of changes in interest rates and other market factors (2)
(10
)
 
24

 
(637
)
 
1,162

Model and other cash flow assumption changes: (3)
 
 
 
 
 
 
 
Projected cash flows, including changes in costs to service loans
(82
)
 
9

 
(36
)
 
23

Impact of changes in the Home Price Index
5

 
(197
)
 
(2
)
 
(399
)
Impact of changes to the prepayment model
(18
)
 
206

 
142

 
609

Other model changes (4)
10

 
29

 
(101
)
 
136

Balance, September 30
$
4,243

 
$
5,058

 
$
4,243

 
$
5,058

Mortgage loans serviced for investors (in billions)
$
507

 
$
616

 
$
507

 
$
616

(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.
(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 the nine months ended September 30, 2014 due to changes in option-adjusted spread rate assumptions.

Assumption for Fair Value of MSRs
Significant Economic Assumptions
 
September 30, 2014
 
December 31, 2013
 
Fixed
 
Adjustable
 
Fixed
 
Adjustable
Weighted-average OAS
4.45
%
 
7.52
%
 
3.97
%
 
7.61
%
Weighted-average life, in years
5.08

 
2.93

 
5.70

 
2.86

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
 
September 30, 2014
 
Change in Weighted-average Lives
 
 
(Dollars in millions)
Fixed
 
Adjustable
 
Change in
Fair Value
Prepayment rates
 
 
 
 
 
 
 
 
 
Impact of 10% decrease
0.24

 
years
 
0.19

 
years
 
$
244

Impact of 20% decrease
0.50

 
 
 
0.40

 
 
 
515

 
 
 
 
 
 
 
 
 
 
Impact of 10% increase
(0.21
)
 
 
 
(0.16
)
 
 
 
(220
)
Impact of 20% increase
(0.40
)
 
 
 
(0.31
)
 
 
 
(420
)
OAS level
 
 
 
 
 
 
 
 
 
Impact of 100 bps decrease
 
 
 
 
 
 
 
 
$
202

Impact of 200 bps decrease
 
 
 
 
 
 
 
 
423

 
 
 
 
 
 
 
 
 
 
Impact of 100 bps increase
 
 
 
 
 
 
 
 
(186
)
Impact of 200 bps increase
 
 
 
 
 
 
 
 
(358
)