Intangible Assets

Intangible assets consisted of the following:



At December 31,	2014		2013
	(in millions)
Mortgage servicing rights:
Residential	$	159	$	227
Commercial	—		10
Total mortgage servicing rights	159		237
Purchased credit card relationships	47		54
Favorable lease agreements	—		4
Total intangible assets	$	206	$	295

Mortgage Servicing Rights ("MSRs") A servicing asset is a contract under which estimated future revenues from contractually specified cash flows, such as servicing fees and other ancillary revenues, are expected to exceed the obligation to service the financial assets. We recognize the right to service mortgage loans as a separate and distinct asset at the time they are acquired or when originated loans are sold.

MSRs are subject to credit, prepayment and interest rate risk, in that their value will fluctuate as a result of changes in these economic variables. Interest rate risk is mitigated through an economic hedging program that uses securities and derivatives to offset changes in the fair value of MSRs. Since the hedging program involves trading activity, risk is quantified and managed using a number of risk assessment techniques.

Residential mortgage servicing rights Residential MSRs are initially measured at fair value at the time that the related loans are sold and remeasured at fair value at each reporting date. Changes in fair value of MSRs are reflected in residential mortgage banking revenue in the period in which the changes occur. Fair value is determined based upon the application of valuation models and other inputs. The valuation models incorporate assumptions market participants would use in estimating future cash flows. The reasonableness of these valuation models is periodically validated by reference to external independent broker valuations and industry surveys.

The following table summarizes the critical assumptions used to calculate the fair value of residential MSRs:



At December 31,	2014		2013
Annualized constant prepayment rate ("CPR")	15.9	%	11.3	%
Constant discount rate	14.1	%	12.7	%
Weighted average life (in years)	4.1		5.3

The following table summarizes residential MSRs activity:



Year Ended December 31,	2014			2013
	(in millions)
Fair value of MSRs:
Beginning balance	$	227		$	168
Additions related to loan sales	—			14
Changes in fair value due to changes in valuation model inputs or assumptions	(38		)	88
Reductions related to customer payments	(30		)	(43		)
Ending balance	$	159		$	227

The outstanding principal balance of serviced for others mortgages, which are not included in the consolidated balance sheet, totaled $23,101 million and $26,951 million at December 31, 2014 and 2013, respectively.

Servicing fees collected are included in residential mortgage banking revenue and totaled $68 million, $79 million and $87 million during 2014, 2013 and 2012, respectively.

During 2013, we completed the conversion of our mortgage processing and servicing operations to PHH Mortgage. Under the terms of the agreement, PHH Mortgage provides us with mortgage origination processing services as well as the sub-servicing of our portfolio of owned and serviced for others mortgages with an outstanding principal balance of $40,889 million and $44,039 million at December 31, 2014 and 2013, respectively. Although we continue to own both the mortgages on our balance sheet and the mortgage servicing rights associated with the serviced loans at the time of conversion, we now sell our agency eligible originations to PHH Mortgage on a servicing released basis which results in no new mortgage servicing rights being recognized.

Commercial mortgage servicing rights Commercial MSRs represented servicing rights associated with commercial mortgage loans originated and sold to FNMA and FHLMC and were accounted for using the lower of amortized cost or fair value method. During the third quarter of 2014, we sold our FNMA commercial MSRs to a third party for $22 million and recognized a gain of $16 million. During the fourth quarter of 2014, we decided to sell our remaining FHLMC commercial MSRs and, as a result, we considered these assets held for sale at December 31, 2014 and reported them in other assets on the consolidated balance sheet. As the estimated sales price of these MSRs was in excess of their carrying amount, these MSRs continue to be carried at amortized cost. This sale is expected to be completed during the first quarter of 2015 and the resulting gain on sale will be insignificant.

Purchased credit card relationships In 2012, we purchased from HSBC Finance the account relationships associated with $746 million of credit card receivables which were not included in the sale to Capital One Financial Corporation at a fair value of $108 million. Approximately $43 million of this value was associated with the credit card receivables sold to First Niagara. The remaining $65 million was included in intangible assets and is being amortized over the estimated useful life of the credit card relationships which is ten years.