Mortgage Servicing Rights (Tables)

6 Months Ended

Jun. 30, 2017

Changes in Fair Value of Capitalized MSRs

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


	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in Millions)	2017			2016			2017			2016
Balance at beginning of period	$	2,642		$	2,222		$	2,591		$	2,512
Rights purchased		4			6			6			14
Rights capitalized		82			131			204			230
Changes in fair value of MSRs
Due to fluctuations in market interest rates (a)		(50	)		(187	)		(30	)		(488	)
Due to revised assumptions or models (b)		5			–			17			–
Other changes in fair value (c)		(101	)		(116	)		(206	)		(212	)
Balance at end of period	$	2,582		$	2,056		$	2,582		$	2,056

(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 option adjusted spread, 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 of the Fair Value of MSRs 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:


	June 30, 2017																		December 31, 2016
(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	$	(516	)	$	(229	)	$	(108	)	$	95		$	177		$	305		$	(476	)	$	(209	)	$	(98	)	$	85		$	159		$	270
Derivative instrument hedges		478			223			106			(99	)		(191	)		(356	)		375			180			88			(84	)		(165	)		(314	)
Net sensitivity	$	(38	)	$	(6	)	$	(2	)	$	(4	)	$	(14	)	$	(51	)	$	(101	)	$	(29	)	$	(10	)	$	1		$	(6	)	$	(44	)

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


	June 30, 2017												December 31, 2016
(Dollars in Millions)	HFA			Government			Conventional (c)			Total			HFA			Government			Conventional (c)			Total
Servicing portfolio (a)	$	38,104		$	37,314		$	155,272		$	230,690		$	34,746		$	37,530		$	157,771		$	230,047
Fair value	$	425		$	420		$	1,737		$	2,582		$	398		$	422		$	1,771		$	2,591
Value (bps) (b)		112			113			112			112			115			112			112			113
Weighted-average servicing fees (bps)		35			34			27			30			36			34			27			30
Multiple (value/servicing fees)		3.20			3.32			4.15			3.73			3.19			3.29			4.15			3.77
Weighted-average note rate		4.39	%		3.93	%		4.02	%		4.07	%		4.37	%		3.95	%		4.02	%		4.06	%
Weighted-average age (in years)		2.9			4.0			3.9			3.8			2.9			3.8			3.8			3.7
Weighted-average expected prepayment (constant prepayment rate)		9.6	%		11.7	%		10.0	%		10.2	%		9.4	%		11.3	%		9.8	%		10.0	%
Weighted-average expected life (in years)		7.8			6.5			6.8			6.9			8.0			6.8			6.9			7.0
Weighted-average option adjusted spread (d)		9.9	%		9.2	%		7.2	%		8.0	%		9.9	%		9.2	%		7.2	%		8.0	%

(a)

Represents principal balance of mortgages having corresponding MSR asset.

(b)

Calculated as fair value divided by the servicing portfolio.

(c)

Represents loans sold primarily to GSEs.

(d)

Option adjusted spread is the incremental spread added to the risk-free rate to reflect optionality and other risk inherent in the MSRs.