Mortgage Servicing Rights (Tables)

3 Months Ended

Mar. 31, 2019

Changes in Fair Value of Capitalized MSRs

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


	Three Months Ended March 31
(Dollars in Millions)	2019			2018
Balance at beginning of period	$	2,791		$	2,645
Rights purchased		1			2
Rights capitalized		78			100
Changes in fair value of MSRs
Due to fluctuations in market interest rates (a)		(119	)		114
Due to revised assumptions or models (b)		11			24
Other changes in fair value (c)		(106	)		(105	)
Balance at end of period	$	2,656		$	2,780

(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 MSR Portfolio and Related Derivative Instruments

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


	March 31, 2019																		December 31, 2018
(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	$	(598	)	$	(271	)	$	(128	)	$	114		$	213		$	372		$	(501	)	$	(223	)	$	(105	)	$	92		$	171		$	295
Derivative instrument hedges		538			269			132			(123	)		(232	)		(429	)		455			215			104			(94	)		(177	)		(321	)
Net sensitivity	$	(60	)	$	(2	)	$	4		$	(9	)	$	(19	)	$	(57	)	$	(46	)	$	(8	)	$	(1	)	$	(2	)	$	(6	)	$	(26	)

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


	March 31, 2019												December 31, 2018
(Dollars in Millions)	HFA			Government			Conventional (d)			Total			HFA			Government			Conventional (d)			Total
Servicing portfolio (a)	$	45,133		$	35,785		$	147,361		$	228,279		$	44,384		$	35,990		$	148,910		$	229,284
Fair value	$	510		$	451		$	1,695		$	2,656		$	526		$	465		$	1,800		$	2,791
Value (bps) (b)		113			126			115			116			119			129			121			122
Weighted-average servicing fees (bps)		34			36			27			30			34			36			27			30
Multiple (value/servicing fees)		3.30			3.49			4.28			3.91			3.45			3.63			4.52			4.11
Weighted-average note rate		4.63	%		3.99	%		4.07	%		4.17	%		4.59	%		3.97	%		4.06	%		4.15	%
Weighted-average age (in years)		3.4			4.8			4.7			4.5			3.3			4.7			4.5			4.3
Weighted-average expected prepayment (constant prepayment rate)		10.8	%		12.0	%		10.3	%		10.7	%		9.8	%		11.0	%		9.1	%		9.5	%
Weighted-average expected life (in years)		7.2			6.3			6.6			6.7			7.7			6.7			7.1			7.2
Weighted-average option adjusted spread (c)		8.6	%		8.2	%		7.1	%		7.6	%		8.6	%		8.3	%		7.2	%		7.6	%

(a)

Represents principal balance of mortgages having corresponding MSR asset.

(b)

Calculated as fair value divided by the servicing portfolio.

(c)

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

(d)

Represents loans sold primarily to GSEs.