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Mortgage Servicing Rights (Tables)

6 Months Ended

Jun. 30, 2020


	Three Months Ended June 30						Six Months Ended June 30
(Dollars in Millions)	2020			2019			2020			2019
Balance at beginning of period	$	1,887		$	2,656		$	2,546		$	2,791
Rights purchased		3			6			8			7
Rights capitalized		190			127			391			205
Rights sold (a)		1			–			2			–
Changes in fair value of MSRs
Due to fluctuations in market interest rates (b)		(64	)		(211	)		(807	)		(330	)
Due to revised assumptions or models (c)		27			4			44			15
Other changes in fair value (d)		(204	)		(124	)		(344	)		(230	)
Balance at end of period	$	1,840		$	2,458		$	1,840		$	2,458

(a)	MSRs sold in 2020 include those having a negative fair value, resulting from the loans being severely delinquent.

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

(c)	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.

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

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


	June 30, 2020																		December 31, 2019
(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	$	(323	)	$	(216	)	$	(124	)	$	151		$	321		$	687		$	(663	)	$	(316	)	$	(153	)	$	141		$	269		$	485
Derivative instrument hedges		422			229			121			(136	)		(285	)		(611	)		613			306			152			(143	)		(279	)		(550	)
Net sensitivity	$	99		$	13		$	(3	)	$	15		$	36		$	76		$	(50	)	$	(10	)	$	(1	)	$	(2	)	$	(10	)	$	(65	)

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


	June 30, 2020												December 31, 2019
(Dollars in Millions)	HFA			Government			Conventional (d)			Total			HFA			Government			Conventional (d)			Total
Servicing portfolio (a)	$	44,216		$	33,064		$	140,370		$	217,650		$	44,906		$	35,302		$	143,310		$	223,518
Fair value	$	375		$	327		$	1,138		$	1,840		$	486		$	451		$	1,609		$	2,546
Value (bps) (b)		85			99			81			85			108			128			112			114
Weighted-average servicing fees (bps)		35			40			29			32			34			39			28			31
Multiple (value/servicing fees)		2.45			2.48			2.79			2.66			3.15			3.29			4.00			3.67
Weighted-average note rate		4.59	%		3.95	%		4.00	%		4.11	%		4.65	%		3.99	%		4.07	%		4.17	%
Weighted-average age (in years)		3.8			5.2			4.8			4.7			3.7			4.9			4.8			4.6
Weighted-average expected prepayment (constant prepayment rate)		16.5	%		19.0	%		21.7	%		20.2	%		12.2	%		13.7	%		12.2	%		12.4	%
Weighted-average expected life (in years)		5.1			4.3			3.7			4.1			6.5			5.7			5.9			6.0
Weighted-average option adjusted spread (c)		7.1	%		6.7	%		5.6	%		6.1	%		8.4	%		7.9	%		6.9	%		7.3	%

(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.