Quarterly report pursuant to Section 13 or 15(d)

Mortgage Servicing Rights (Tables)

v2.4.0.6
Mortgage Servicing Rights (Tables)
 6 Months Ended
Jun. 30, 2012
Transfers and Servicing [Abstract]  
Activity for Residential First Mortgage MSRs
The table below presents activity for residential first-lien MSRs for the three and six months ended June 30, 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 $172 million and $132 million at June 30, 2012 and December 31, 2011, and are not included in the tables in this Note.

Rollforward of Mortgage Servicing Rights
 
 
 
 
 
 
 
 
Three Months Ended
June 30
 
Six Months Ended
June 30
(Dollars in millions)
2012
 
2011
 
2012
 
2011
Balance, beginning of period
$
7,589

 
$
15,282

 
$
7,378

 
$
14,900

Additions
91

 
410

 
168

 
1,251

Sales
(98
)
 
(234
)
 
(98
)
 
(234
)
Impact of customer payments (1)
(282
)
 
(639
)
 
(803
)
 
(1,345
)
Impact of changes in interest rates and other market factors (2)
(1,717
)
 
(1,094
)
 
(742
)
 
(385
)
Model and other cash flow assumption changes: (3)
 
 
 
 
 
 
 
Projected cash flows, primarily due to (increases) decreases in costs to service loans (4)
666

 
(1,501
)
 
393

 
(2,029
)
Impact of changes in the Home Price Index
5

 
212

 
20

 
434

Impact of changes to the prepayment model
342

 
303

 
342

 
126

Other model changes
(888
)
 
(367
)
 
(950
)
 
(346
)
Balance, June 30
$
5,708

 
$
12,372

 
$
5,708

 
$
12,372

Mortgage loans serviced for investors (in billions)
$
1,224

 
$
1,578

 
$
1,224

 
$
1,578

(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 June 30, 2012 and December 31, 2011 are presented below.

Significant Economic Assumptions
 
June 30, 2012
 
December 31, 2011
 
Fixed
 
Adjustable
 
Fixed
 
Adjustable
Weighted-average OAS
5.95
%
 
9.12
%
 
2.80
%
 
5.61
%
Weighted-average life, in years
3.71

 
2.06

 
3.78

 
2.10

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, 2012
 
Change in Weighted-average Lives
 
 
(Dollars in millions)
Fixed
 
Adjustable
 
Change in
Fair Value
Prepayment rates
 
 
 
 
 
 
 
 
 
Impact of 10% decrease
0.30

 
years
 
0.19

 
years
 
$
501

Impact of 20% decrease
0.65

 
 
 
0.41

 
 
 
1,071

 
 
 
 
 
 
 
 
 
 
Impact of 10% increase
(0.26
)
 
 
 
(0.16
)
 
 
 
(443
)
Impact of 20% increase
(0.49
)
 
 
 
(0.31
)
 
 
 
(838
)
OAS level
 
 
 
 
 
 
 
 
 
Impact of 100 bps decrease
 
 
 
 
 
 
 
 
$
256

Impact of 200 bps decrease
 
 
 
 
 
 
 
 
532

 
 
 
 
 
 
 
 
 
 
Impact of 100 bps increase
 
 
 
 
 
 
 
 
(238
)
Impact of 200 bps increase
 
 
 
 
 
 
 
 
(459
)