Mortgage Servicing Rights (Tables)

9 Months Ended

Sep. 30, 2012

Changes in Fair Value of Capitalized MSRs

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


	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in Millions)	2012			2011			2012			2011
Balance at beginning of period	$	1,594		$	1,989		$	1,519		$	1,837
Rights purchased		10			5			39			16
Rights capitalized		224			101			700			416
Changes in fair value of MSRs
Due to fluctuations in market interest rates (a)		(123	)		(534	)		(298	)		(569	)
Due to revised assumptions or models (b)		(2	)		2			(19	)		27
Other changes in fair value (c)		(150	)		(97	)		(388	)		(261	)

Balance at end of period	$	1,553		$	1,466		$	1,553		$	1,466

(a)

Includes changes in MSR value associated with changes in market interest rates, including estimated prepayment rates and anticipated earnings on escrow deposits.

(b)

Includes changes in MSR value not caused by changes in market interest rates, such as changes in cost to service, ancillary income, and discount rate, as well as the impact of any model changes.

(c)

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

Sensitivity to Changes in Interest Rates to Fair Value of MSR's Portfolio and Related Derivative Instruments

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


	September 30, 2012																		December 31, 2011
(Dollars in Millions)	Down 100 bps			Down 50 bps			Down 25 bps			Up 25 bps			Up 50 bps			Up 100 bps			Down 100 bps			Down 50 bps			Down 25 bps			Up 25 bps			Up 50 bps			Up 100 bps
MSR portfolio	$	(262	)	$	(162	)	$	(94	)	$	109		$	231		$	483		$	(305	)	$	(183	)	$	(98	)	$	107		$	223		$	460
Derivative instrument hedges		405			208			105			(105	)		(210	)		(422	)		378			204			104			(107	)		(217	)		(445	)
Net sensitivity	$	143		$	46		$	11		$	4		$	21		$	61		$	73		$	21		$	6		$	—		$	6		$	15

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


	September 30, 2012												December 31, 2011
(Dollars in Millions)	MRBP			Government			Conventional (b)			Total			MRBP			Government			Conventional (b)			Total
Servicing portfolio	$	13,939		$	38,162		$	159,162		$	211,263		$	13,357		$	32,567		$	145,158		$	191,082
Fair market value	$	154		$	304		$	1,095		$	1,553		$	155		$	290		$	1,074		$	1,519
Value (bps) (a)		110			80			69			74			116			89			74			79
Weighted-average servicing fees (bps)		40			34			30			31			40			36			29			31
Multiple (value/servicing fees)		2.75			2.35			2.30			2.39			2.90			2.47			2.55			2.55
Weighted-average note rate		5.24	%		4.69	%		4.63	%		4.68	%		5.50	%		5.08	%		4.97	%		5.03	%
Weighted-average age (in years)		4.2			2.4			2.5			2.6			4.2			2.5			2.8			2.8
Weighted-average expected prepayment (constant prepayment rate)		13.1	%		21.6	%		23.1	%		22.2	%		12.9	%		21.1	%		22.1	%		21.3	%
Weighted-average expected life (in years)		6.2			4.0			3.5			3.8			6.4			4.0			3.8			4.0
Weighted-average 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.

- Definition

Tabular disclosure of a sensitivity analysis or stress test showing the hypothetical effect on the fair value of the transferor's interests in transferred financial assets (including any servicing assets or servicing liabilities) of two or more unfavorable variations from the expected levels for each key assumption that is reported, independently determined from any change in another key assumption, and a description of the objectives, methodology, and limitations of the sensitivity analysis or stress test.

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- Definition

Tabular disclosure of the activity in the balance of servicing assets (including a description of where changes in fair value are reported in the statement of income for each period for which results of operations are presented), including but not limited to, the following: beginning and ending balances, additions (for instance, through purchases of servicing assets), disposals, changes in fair value during the period resulting from changes in inputs or assumptions used in the valuation model, other changes in fair value along with a description of those changes, and other changes that affect the balance along with a description of those changes.

+ References+ Details