Mortgage Servicing Rights

9 Months Ended

Sep. 30, 2014

Mortgage Servicing Rights [Abstract]

Note 6 – Mortgage Servicing Rights

FHN recognizes all classes of mortgage servicing rights (“MSR”) at fair value. Classes of MSR are established based on market inputs used to determine the fair value of the servicing asset and FHN’s risk management practices. See Note 17 – Fair Value of Assets & Liabilities, the “Determination of Fair Value” section for a discussion of FHN’s MSR valuation methodology. In third quarter 2013, FHN agreed to sell substantially all remaining legacy mortgage servicing which resulted in de-recognition of substantially all first lien MSR by the end of first quarter 2014. Accordingly the rollforward of MSR is presented for the comparative period only. See Note 15 – Derivatives for a discussion of how FHN hedged the fair value of MSR prior to signing the definitive sales agreement. The balance of MSR included on the Consolidated Condensed Statements of Condition represented the rights to service approximately $15 billion of mortgage loans on September 30, 2013, for which a servicing right had been capitalized.

Following is a summary of changes in capitalized MSR as of September 30, 2013:

(Dollars in thousands)	First Liens		Second Liens		HELOC		Total
Fair value on January 1, 2013	$	111,314	$	196	$	2,801	$	114,311
Reductions due to loan payments		(16,980)		(75)		(342)		(17,397)
Reductions due to exercise of cleanup calls		(495)		-		-		(495)
Changes in fair value due to:
Changes in valuation model inputs or assumptions		20,267		-		-		20,267
Other changes in fair value		(89)		45		44		-
Fair value on September 30, 2013	$	114,017	$	166	$	2,503	$	116,686

The ending balance of MSR as of September 30, 2014 was $2.9 million. In first quarter 2014, FHN sold $68.5 million of first lien MSR. Servicing, late, and other ancillary fees recognized within mortgage banking income were not material for the three months ended September 30, 2014. For the nine months ended September 30, 2014, servicing, late, and other ancillary fees recognized within mortgage banking income were $20.9 million and primarily represent previously unrecognized servicing fees in conjunction with servicing sales. Servicing, late, and other ancillary fees recognized within mortgage banking income were $10.9 million and $35.3 million for the three and nine months ended September 30, 2013, respectively. During third quarter 2013, FHN received annual servicing fees approximating .29 percent of the outstanding balance of underlying single-family residential mortgage loans and .34 percent inclusive of income related to excess interest.

In prior periods, FHN transferred MSR to third parties in transactions that did not qualify for sales treatment due to certain recourse provisions that were included within the sale agreements. In fourth quarter 2013, FHN determined that these provisions had lapsed and the balances related to these transactions were removed from FHN's Consolidated Condensed Statements of Condition. On September 30, 2013, FHN had $11.7 million of MSR related to these transactions, which were included within the first liens mortgage loans column of the rollforward of MSR. The proceeds from these transfers were recognized within Other short-term borrowings in the Consolidated Condensed Statements of Condition.