In March of 2015, the Bancorp recognized a $37 million gain, included in other noninterest income in the 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 years ended December 31, 2015, 2014 and 2013. In those sales, the Bancorp obtained servicing responsibilities and provided certain standard representations and warranties, however 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 Consolidated Statements of Income, for the years ended December 31 is as follows:

($ in millions)		2015		2014	2013
Residential mortgage loan sales^(a)	$	5,078	^(b)	5,467	21,529

Origination fees and gains on loan sales		171		153	453
Gross mortgage servicing fees		222		246	251

The following table presents changes in the servicing rights related to residential mortgage and automobile loans for the years ended December 31:

($ in millions)		2015	2014
Carrying amount before valuation allowance:
Balance, beginning of period	$	1,392	1,440
Servicing rights that result from the transfer of residential mortgage loans		63	73
Amortization		(140)	(121)
Other-than-temporary impairment		(111)	0
Balance, end of period	$	1,204	1,392
Valuation allowance for servicing rights:
Balance, beginning of period	$	(534)	(469)
Recovery of (provision for) MSR impairment		4	(65)
Other-than-temporary impairment		111	0
Balance, end of period		(419)	(534)
Carrying amount after valuation allowance	$	785	858

Amortization expense recognized on servicing rights for the years ended December 31, 2015, 2014 and 2013 was $140 million, $121 million and $168 million, respectively. The Bancorp's projections of amortization expense shown below are based on existing asset balances and static key economic assumptions as of December 31, 2015. Future amortization expense may vary from these projections.


Estimated amortization expense for the years ending December 31, 2016 through 2020 is as follows:

($ in millions)		Total
2016	$	114
2017		103
2018		93
2019		85
2020		77

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 Consolidated Statements of Income. Other-than-temporary impairment recognized through a write-off of the servicing right and related valuation allowance is captured as a component of servicing rights on the Consolidated Balance Sheets. 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 of the servicing rights for the years ended December 31:

($ in millions)		2015	2014
Fixed-rate residential mortgage loans:
Balance, beginning of period	$	823	929
Balance, end of period		757	823
Adjustable-rate residential mortgage loans:
Balance, beginning of period		33	38
Balance, end of period		27	33
Fixed-rate automobile loans:
Balance, beginning of period		2	4
Balance, end of period		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 the Consolidated Statements of Income for the years ended December 31:

($ in millions)		2015	2014	2013
Securities gains, net - non-qualifying hedges on MSRs	$	-	-	13
Changes in fair value and settlement of free-standing derivatives purchased
to economically hedge the MSR portfolio (mortgage banking net revenue)		90	95	(30)
Recovery of (provision for) MSR impairment (mortgage banking net revenue)		4	(65)	192

As of December 31, 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 years ended December 31 were as follows:

2015

2014

Weighted-

Average

Prepayment

Weighted-

Average

Prepayment

Weighted-

Life

Speed

OAS Spread

Average

Life

Speed

Discount Rate

Average

Rate

(in years)

(annual)

(bps)

Default Rate

(in years)

(annual)

Default Rate

Residential mortgage loans:

Servicing rights

Fixed

6.9

11.0

534

N/A

6.6

11.3

10.0

N/A

Servicing rights

Adjustable

3.4

25.2

303

N/A

3.7

22.3

11.7

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 assets have been deemed immaterial, as the Bancorp sold the majority of the underlying loans without recourse. At December 31, 2015 and 2014, the Bancorp serviced $59.0 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 December 31, 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 Spread		Impact of Adverse Change on Fair Value
($ in millions)^(a)	Rate		Value	(in years)	Rate			10%	20%	50%	(bps)		10%	20%
Residential mortgage loans:
Servicing rights	Fixed	$	757	5.9	11.8	%	$	(32)	(61)	(134)	618	$	(18)	(34)
Servicing rights	Adjustable		27	3.0	27.0			(2)	(3)	(7)	703		(1)	(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.