Sales of Receivables and Servicing Rights

9 Months Ended

Sep. 30, 2011

Sales of Receivables and Servicing Rights

10. Sales of Receivables and Servicing Rights

Residential Mortgage Loan Sales

The Bancorp sold fixed and adjustable rate residential mortgage loans during the three andnine months ended September 30, 2011 and2010. In those sales, the Bancorp obtained servicing responsibilities and the investors have no recourse to the Bancorp's other assets for failure of debtors to pay when due. The Bancorp receives annual servicing fees based on a percentage of the outstanding balance. The Bancorp identifies classes of servicing assets based on financial asset type and interest rates.

Information related to residential mortgage loan sales and the Bancorp's mortgage banking activity, which is included in mortgage banking net revenue in the Condensed Consolidated Statements of Income, is as follows:

		For the three months		For the nine months
		ended September 30,		ended September 30,
($ in millions)		2011	2010	2011	2010
Residential mortgage loan sales	$	3,259	4,958	9,962	11,785
Origination fees and gains on loan sales		119	173	245	332
Servicing fees		59	56	175	163

Servicing Assets

The following table presents changes in the servicing assets related to residential mortgage loans for the nine months ended September 30:

($ in millions)		2011	2010
Carrying amount as of the beginning of the period	$	1,138	979
Servicing obligations that result from the transfer of residential mortgage loans		155	180
Amortization		(87)	(91)
Carrying amount before valuation allowance		1,206	1,068
Valuation allowance for servicing assets:
Beginning balance		(316)	(280)
Servicing impairment		(228)	(189)
Ending balance		(544)	(469)
Carrying amount as of the end of the period	$	662	599

Temporary impairment or impairment recovery, affected through a change in the MSR valuation allowance, is captured as a component of mortgage banking net revenue in the Condensed Consolidated Statements of Income. The Bancorp maintains a non-qualifying hedging strategy to manage a portion of the risk associated with changes in the value of the MSR portfolio. This strategy includes the purchase of free-standing derivatives and various available-for-sale securities. The interest income, mark-to-market adjustments and gain or loss from sale activities associated with these portfolios are expected to economically hedge a portion of the change in value of the MSR portfolio caused by fluctuating discount rates, earnings rates and prepayment speeds.

The fair value of the servicing asset is based on the present value of expected future cash flows. The following table displays the beginning and ending fair value for the nine months ended September 30:

($ in millions)		2011	2010
Fixed rate residential mortgage loans:
Beginning balance	$	791	667
Ending balance		630	572
Adjustable rate residential mortgage loans:
Beginning balance		31	32
Ending balance		32	27

The following table presents activity related to valuations of the MSR portfolio and the impact of the non-qualifying hedging strategy, which is included in the Condensed Consolidated Statements of Income:

		For the three months		For the nine months
		ended September 30,		ended September 30,
($ in millions)		2011	2010	2011	2010
Securities gains, net - non-qualifying hedges on MSRs	$	6	-	12	-
Changes in fair value and settlement of free-standing derivatives purchased
to economically hedge the MSR portfolio (Mortgage banking net revenue)		235	129	338	283
Provision for MSR impairment (Mortgage banking net revenue)		(201)	(83)	(228)	(189)

As of September 30, 2011 and 2010, the key economic assumptions used in measuring the interests that continued to be held by the Bancorp at the date of sale or securitization resulting from transactions completed during the three months ended:

		September 30, 2011						September 30, 2010
	Rate	Weighted-Average Life (in years)	Prepayment Speed (annual)		Discount Rate (annual)		Weighted-Average Default rate	Weighted-Average Life (in years)	Prepayment Speed (annual)		Discount Rate (annual)		Weighted-Average Default rate
Residential mortgage loans:
Servicing assets	Fixed	6.3	11.1	%	10.5	%	N/A	6.0	12.7	%	10.7	%	N/A
Servicing assets	Adjustable	3.7	22.3		11.4		N/A	3.4	24.4		11.6		N/A

Based on historical credit experience, expected credit losses for residential mortgage loan servicing assets have been deemed immaterial, as the Bancorp sold the majority of the underlying loans without recourse. At September 30, 2011, December 31, 2010 andSeptember 30, 2010, the Bancorp serviced $56.5billion, $54.2billion and $52.4 billion, respectively, of residential mortgage loans for other investors. The value of interests that continue to be held by the Bancorp is subject to credit, prepayment and interest rate risks on the sold financial assets. At September 30, 2011, the sensitivity of the current fair value of residual cash flows to immediate 10% and 20% adverse changes in those assumptions are as follows:

					Prepayment				Residual Servicing				Weighted-Average
					Speed Assumption				Cash Flows				Default
			Fair	Weighted-Average Life (in			Impact of Adverse Change on Fair Value		Discount		Impact of Adverse Change on Fair Value				Impact of Adverse Change on Fair Value
($ in millions)	Rate		Value	years)	Rate		10%	20%	Rate		10%	20%	Rate		10%	20%
Residential mortgage loans:
Servicing assets	Fixed	$	630	4.7	16.7	%	(37)	(71)	10.6	%	(21)	(41)	-	%	-	-
Servicing assets	Adjustable		32	3.0	27.2		(2)	(3)	11.9		(1)	(2)	-		-	-

These sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in fair value based on a 10% and 20% variation in the assumptions typically cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in the previous table, the effect of a variation in a particular assumption on the fair value of the interests that continue to be held by the Bancorp is calculated without changing any other assumption; in reality, changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments and increased credit losses), which might magnify or counteract these sensitivities.