In March of 2015, the Bancorp recognized a $37 million gain, included in other noninterest income in the Condensed Consolidated Statements of Income, on the sale of certain HFS residential mortgage loans with a carrying value of $568 million that were previously modified in a TDR. As part of this sale, the Bancorp provided certain standard representations and warranties. Additionally, the Bancorp did not obtain servicing responsibilities on the sales of these loans and the investors have no credit recourse to the Bancorp's other assets for failure of debtors to pay when due.

The Bancorp sold fixed and adjustable rate residential mortgage loans during the three and nine months ended September 30, 2015 and 2014. 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 however the Bancorp provided certain standard representations and warranties. 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 ended		For the nine months ended
		September 30,		September 30,
($ in millions)		2015	2014	2015		2014
Residential mortgage loan sales^(a)	$	1,421	1,228	3,798	^(b)	4,423

Origination fees and gains on loan sales		46	34	134		117
Gross mortgage servicing fees		54	61	169		186

Servicing Rights
The following table presents changes in the servicing rights related to residential mortgage and automobile loans for the nine months ended September 30:

($ in millions)		2015	2014
Carrying amount before valuation allowance as of the beginning of the period	$	1,392	1,440
Servicing rights that result from the transfer of residential mortgage loans		48	60
Amortization		(111)	(89)
Carrying amount before valuation allowance		1,329	1,411
Valuation allowance for servicing rights:
Beginning balance		(534)	(469)
Provision for MSR impairment		(38)	(7)
Ending balance		(572)	(476)
Carrying amount as of the end of the period	$	757	935

Amortization expense recognized on servicing rights for the three months ended September 30, 2015 and 2014 was $37 million and $34 million, respectively. For the nine months ended September 30, 2015 and 2014, amortization expense was $111 million and $89 million, respectively. The Bancorp's projections of amortization expense shown below are based on existing asset balances and static key economic assumptions as of September 30, 2015. Future amortization expense may vary from these projections.


Estimated amortization expense for the remainder of 2015 through 2019 is as follows:

($ in millions)		Total
Remainder of 2015	$	34
2016		127
2017		114
2018		103
2019		93

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 may include 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 of the servicing rights for the nine months ended September 30:

($ in millions)		2015	2014
Fixed-rate residential mortgage loans:
Beginning balance	$	823	929
Ending balance		731	898
Adjustable-rate residential mortgage loans:
Beginning balance		33	38
Ending balance		25	35
Fixed-rate automobile loans:
Beginning balance		2	4
Ending balance		1	2

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 mortgage banking net revenue in the Condensed Consolidated Statements of Income:

		For the three months ended		For the nine months ended
		September 30,		September 30,
($ in millions)		2015	2014	2015	2014
Changes in fair value and settlement of free-standing derivatives purchased
to economically hedge the MSR portfolio	$	85	(22)	119	40
(Provision for) recovery of MSR impairment		(77)	21	(38)	(7)

As of September 30, 2015 and 2014, the key economic assumptions used in measuring the interests in residential mortgage loans that continued to be held by the Bancorp at the date of sale or securitization resulting from transactions completed during the three months ended were as follows:

		September 30, 2015					September 30, 2014
	Rate	Weighted-Average Life (in years)	Prepayment Speed (annual)		OAS Spread (bps)	Weighted-Average Default Rate	Weighted-Average Life (in years)	Prepayment Speed (annual)		Discount Rate (annual)		Weighted-Average Default Rate
Residential mortgage loans:
Servicing rights	Fixed	7.4	10.9	%	674	N/A	7.0	10.5	%	9.9	%	N/A
Servicing rights	Adjustable	2.8	32.9		671	N/A	3.7	22.2		11.8		N/A

During the first quarter of 2015, the Bancorp adopted an OAS valuation approach for valuing its MSRs. This approach projects servicing cash flows over multiple interest rate scenarios, which are then discounted at risk-adjusted rates.

Based on historical credit experience, expected credit losses for residential mortgage loan servicing rights have been deemed immaterial, as the Bancorp sold the majority of the underlying loans without recourse. At September 30, 2015 and December 31, 2014, the Bancorp serviced $60.3 billion and $65.4 billion, respectively, of residential mortgage loans for other investors. The value of MSRs 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, 2015, the sensitivity of the current fair value of residual cash flows to immediate 10%, 20% and 50% adverse changes in prepayment speed assumptions and immediate 10% and 20% adverse changes in other assumptions are as follows:

					Prepayment						Residual Servicing
					Speed Assumption						Cash Flows
			Fair	Weighted-Average Life				Impact of Adverse Change on Fair Value			OAS		Impact of Adverse Change on Fair Value
($ in millions)^(a)	Rate		Value	(in years)	Rate			10%	20%	50%	Spread (bps)		10%	20%
Residential mortgage loans:
Servicing rights	Fixed	$	731	5.7	11.7	%	$	(34)	(66)	(146)	706	$	(19)	(37)
Servicing rights	Adjustable		25	2.5	32.7			(2)	(3)	(7)	668		-	(1)

These sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in fair value based on these variations 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. The Bancorp believes variations of these levels are reasonably possible; however, there is the potential that adverse changes in key assumptions could be even greater. 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), which might magnify or counteract these sensitivities.