Sales of Receivables and Servicing Rights (Tables)

9 Months Ended

Sep. 30, 2016

Sales of Receivables and Servicing Rights

Activity Related to Mortgage Banking Net Revenue

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)		2016	2015	2016	2015
Residential mortgage loan sales(a)	$	1,846	1,421	4,591	3,798	(b)
Origination fees and gains on loan sales		61	46	156	134
Gross mortgage servicing fees		49	54	151	169

• Represents the unpaid principal balance at the time of the sale.
• Excludes $568of HFS residential mortgage loans previously modified in a TDR that were sold during the first quarter of 2015.

Changes in the Servicing Assets

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)		2016	2015
Carrying amount before valuation allowance:
Balance, beginning of period	$	1,204	1,392
Servicing rights that result from the transfer of residential mortgage loans		55	48
Amortization		(96)	(111)
Balance, end of period	$	1,163	1,329
Valuation allowance for servicing rights:
Balance, beginning of period	$	(419)	(534)
Provision for MSR impairment		(125)	(38)
Balance, end of period		(544)	(572)
Carrying amount after valuation allowance	$	619	757

Estimated Amortization Expense on Servicing Rights

Estimated amortization expense for the remainder of 2016 through 2020 is as follows:
($ in millions)		Total
Remainder of 2016	$	-
2017		2
2018		1
2019		1
2020		1

Estimated amortization expense for the remainder of 2016 through 2020 is as follows:
($ in millions)		Total
Remainder of 2016	$	35
2017		131
2018		116
2019		102
2020		90

Fair Value of the Servicing Assets

The following table displays the beginning and ending fair value of the servicing rights for the nine months ended September 30:
($ in millions)		2016	2015
Fixed-rate residential mortgage loans:
Balance, beginning of period	$	757	823
Balance, end of period		597	731
Adjustable-rate residential mortgage loans:
Balance, beginning of period		27	33
Balance, end of period		22	25
Fixed-rate automobile loans:
Balance, beginning of period		1	2
Balance, end of period		-	1

Activity Related to the MSR Portfolio

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)		2016	2015	2016	2015
Changes in fair value and settlement of free-standing derivatives purchased
to economically hedge the MSR portfolio	$	(16)	85	133	119
(Provision for) recovery of MSR impairment		7	(77)	(125)	(38)

Servicing Assets and Residual Interests Economic Assumptions

As of September 30, 2016 and 2015, 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, 2016					September 30, 2015
	Rate	Weighted-Average Life (in years)	Prepayment Speed (annual)		OAS Spread (bps)	Weighted-Average Default Rate	Weighted-Average Life (in years)	Prepayment Speed (annual)		OAS Spread (bps)	Weighted-Average Default Rate
Residential mortgage loans:
Servicing rights	Fixed	6.6	11.7	%	564	N/A	7.4	10.9	%	674	N/A
Servicing rights	Adjustable	2.8	30.0		681	N/A	2.8	32.9		671	N/A

Sensitivity of the Current Fair Value of Residual Cash Flows to Immediate 10%, 20% and 50% Adverse Changes in Assumptions

At September 30, 2016, 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			OASSpread		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	$	597	4.9	14.9	%	$	(31)	(59)	(128)	615	$	(13)	(26)
Servicing rights	Adjustable		22	3.1	27.1			(1)	(3)	(6)	724		-	(1)

(a) The impact of the weighted-average default rate on the current fair value of residual cash flows for all scenarios is immaterial.