Mortgage Servicing Rights (Tables)

9 Months Ended

Sep. 30, 2021

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


	Three Months Ended September 30						Nine Months Ended September 30
(Dollars in Millions)	2021			2020			2021			2020
Balance at beginning of period	$	2,713		$	1,840		$	2,210		$	2,546
Rights purchased		9			8			36			16
Rights capitalized		284			321			896			712
Rights sold (a)		—			1			1			3
Changes in fair value of MSRs
Due to fluctuations in market interest rates (b)		53			(8	)		307			(815	)
Due to revised assumptions or models (c)		(30	)		(7	)		(169	)		37
Other changes in fair value (d)		(119	)		(177	)		(371	)		(521	)
Balance at end of period	$	2,910		$	1,978		$	2,910		$	1,978

(a)	MSRs sold 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 assumed cost to service, ancillary income and option adjusted spread, as well as the impact of any model changes.

(d)	Primarily the change in MSR value from passage of time and cash flows realized (decay), but also includes the impact of changes to expected cash flows not associated with changes in market interest rates, such as the impact of delinquencies.

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


	September 30, 2021																		December 31, 2020
(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	$	(619	)	$	(320	)	$	(161	)	$	154		$	294		$	520		$	(442	)	$	(271	)	$	(150	)	$	169		$	343		$	671
Derivative instrument hedges		574			290			144			(137	)		(270	)		(524	)		523			281			145			(149	)		(304	)		(625	)
Net sensitivity	$	(45	)	$	(30	)	$	(17	)	$	17		$	24		$	(4	)	$	81		$	10		$	(5	)	$	20		$	39		$	46

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


	September 30, 2021												December 31, 2020
(Dollars in Millions)	HFA			Government			Conventional(d)			Total			HFA			Government			Conventional(d)			Total
Servicing portfolio (a)	$	40,038		$	22,392		$	153,543		$	215,973		$	40,396		$	25,474		$	143,085		$	208,955
Fair value	$	508		$	304		$	2,098		$	2,910		$	406		$	261		$	1,543		$	2,210
Value (bps) (b)		127			136			137			135			101			102			108			106
Weighted-average servicing fees (bps)		36			41			30			32			35			40			30			32
Multiple (value/servicing fees)		3.56			3.34			4.51			4.16			2.87			2.56			3.55			3.26
Weighted-average note rate		4.14	%		3.75	%		3.48	%		3.63	%		4.43	%		3.91	%		3.78	%		3.92	%
Weighted-average age (in years)		3.8			5.8			3.4			3.7			3.8			5.6			4.2			4.3
Weighted-average expected prepayment (constant prepayment rate)		11.3	%		13.4	%		9.4	%		10.2	%		14.1	%		18.0	%		13.8	%		14.4	%
Weighted-average expected life (in years)		6.6			5.5			7.0			6.8			5.6			4.3			5.5			5.4
Weighted-average option adjusted spread (c)		7.7	%		7.3	%		6.5	%		6.8	%		7.7	%		7.3	%		6.2	%		6.6	%

(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.