Other Assets Held for Sale

9 Months Ended

Sep. 30, 2016

Discontinued Operations and Disposal Groups [Abstract]

Other Assets Held for Sale

Other Assets Held for Sale

In March 2016, our Retail Banking and Wealth Management business initiated an active program to sell its remaining MSRs portfolio which has been in run-off for several years. As a result, we now consider the MSRs portfolio and related servicing advances to be held for sale at September 30, 2016 and reported them in other assets on the consolidated balance sheet. In August 2016, we entered into an agreement to sell the remaining MSRs portfolio to a third party and expect the sale to be completed during the fourth quarter of 2016. As the MSRs continue to be carried at fair value and we expect to transfer the related servicing advances to the buyer at near cost, the resulting gain or loss on sale, including transaction costs, is not expected to be significant.

The disposal group held for sale reported in other assets consisted of the following at September 30, 2016:

	Location on Consolidated Balance Sheet Prior to Reclassification to Held for Sale	September 30, 2016
		(in millions)
Mortgage servicing rights	Intangible assets, net	$	95
Servicing advances	Other assets	208
Total assets held for sale		$	303

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.

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 (expense) in the period in which the changes occur. At September 30, 2016, fair value is determined based upon the sales price formula as defined in the executed sales agreement. Previously, fair value was determined based upon the application of valuation models and other inputs. The valuation models incorporated assumptions market participants would use in estimating future cash flows. The reasonableness of these valuation models was periodically validated by reference to external independent broker valuations and industry surveys.

The following table summarizes MSRs activity during the three and nine months ended September 30, 2016:

	Three Months Ended September 30, 2016			Nine Months Ended September 30, 2016
	(in millions)
Fair value of MSRs:
Beginning balance	$	104		$	140
Changes in fair value due to changes in valuation inputs or assumptions	(4		)	(28		)
Reductions related to customer payments	(5		)	(17		)
Ending balance	$	95		$	95

The outstanding principal balance of serviced for others mortgages, which are not included in the consolidated balance sheet, totaled $16,476 million at September 30, 2016. Servicing fees collected are included in residential mortgage banking revenue (expense) and totaled$11 million and $36 million during the three and nine months ended September 30, 2016, respectively.