Mortgage Servicing Rights

3 Months Ended

Mar. 31, 2012

Mortgage Servicing Rights [Abstract]

Mortgage Servicing Rights

Note 5 Mortgage Servicing Rights

The Company serviced $200.2 billion of residential mortgage loans for others at March 31, 2012, and $191.1 billion at December 31, 2011. The net impact included in mortgage banking revenue of fair value changes of MSRs and derivatives used to economically hedge MSRs were net gains of $30 million and $62 million for the three months ended March 31, 2012 and 2011, respectively. Loan servicing fees, not including valuation changes, included in mortgage banking revenue, were $171 million and $157 million for the three months ended March 31, 2012 and 2011, respectively.

Changes in fair value of capitalized MSRs are summarized as follows:

Three Months Ended March 31 (Dollars in Millions)
	2012			2011
Balance at beginning of period	$	1,519		$	1,837
Rights purchased		13			7
Rights capitalized		261			213
Changes in fair value of MSRs
Due to change in valuation assumptions (a)		65			102
Other changes in fair value (b)		(121	)		(86	)
Balance at end of period	$	1,737		$	2,073

(a) Principally reflects changes in prepayment speeds, and to a lessor extent, changes in discount rates and escrow earnings assumptions, primarily arising from interest rate changes.

(b) Primarily represents changes due to collection/realization of expected cash flows over time (decay).

The estimated sensitivity to changes in interest rates of the fair value of the MSRs portfolio and the related derivative instruments was as follows:

	March 31, 2012								December 31, 2011
(Dollars in Millions)	Down 50 bps		Down 25 bps		Up 25 bps		Up 50 bps		Down 50 bps		Down 25 bps		Up 25 bps		Up 50 bps
Net fair value	$	23	$	4	$	6	$	23	$	21	$	6	$	—	$	6

The fair value of MSRs and their sensitivity to changes in interest rates is influenced by the mix of the servicing portfolio and characteristics of each segment of the portfolio. The Company’s servicing portfolio consists of the distinct portfolios of government-insured mortgages, conventional mortgages and Mortgage Revenue Bond Programs (“MRBP”). The servicing portfolios are predominantly comprised of fixed-rate agency loans with limited adjustable-rate or jumbo mortgage loans. The MRBP division specializes in servicing loans made under state and local housing authority programs. These programs provide mortgages to low-income and moderate-income borrowers and are generally government-insured programs with a favorable rate subsidy, down payment and/or closing cost assistance.

A summary of the Company’s MSRs and related characteristics by portfolio was as follows:

	March 31, 2012												December 31, 2011
(Dollars in Millions)	MRBP			Government			Conventional (b)			Total			MRBP			Government			Conventional (b)			Total
Servicing portfolio	$	13,532		$	34,253		$	152,386		$	200,171		$	13,357		$	32,567		$	145,158		$	191,082
Fair market value	$	156		$	316		$	1,265		$	1,737		$	155		$	290		$	1,074		$	1,519
Value (bps) (a)		115			92			83			87			116			89			74			79
Weighted-average servicing fees (bps)		40			35			29			31			40			36			29			31
Multiple (value/servicing fees)		2.88			2.63			2.86			2.81			2.90			2.47			2.55			2.55
Weighted-average note rate		5.42	%		4.95	%		4.87	%		4.92	%		5.50	%		5.08	%		4.97	%		5.03	%
Age (in years)		4.3			2.5			2.7			2.8			4.2			2.5			2.8			2.8
Expected prepayment (constant prepayment rate)		13.0	%		19.1	%		19.8	%		19.2	%		12.9	%		21.1	%		22.1	%		21.3	%
Expected life (in years)		6.3			4.5			4.2			4.4			6.4			4.0			3.8			4.0
Discount rate		12.1	%		11.4	%		10.0	%		10.4	%		12.1	%		11.3	%		10.0	%		10.4	%

(a) Value is calculated as fair market value divided by the servicing portfolio.

(b) Represents loans sold primarily to GSEs.