8. Mortgage Servicing Assets

We originate and periodically sell commercial mortgage loans but continue to service those loans for the buyers. We also may purchase the right to service commercial mortgage loans for other lenders. A servicing asset is recorded if we purchase or retain the right to service loans in exchange for servicing fees that exceed the going market rate. Changes in the carrying amount of mortgage servicing assets are summarized as follows:


	Nine months ended September 30,
in millions	2013			2012
Balance at beginning of period	$	204		$	173
Servicing retained from loan sales		31			30
Purchases		144	^(a)		31
Amortization		(48	)		(46	)

Balance at end of period	$	331		$	188

Fair value at end of period	$	388		$	237

(a)	Amount includes $118 million in mortgage servicing assets that were acquired during the second and third quarters of 2013. See Note 11 (“Acquisitions and Discontinued Operations”) for further details regarding this acquisition.

The fair value of mortgage servicing assets is determined by calculating the present value of future cash flows associated with servicing the loans. This calculation uses a number of assumptions that are based on current market conditions. The range and weighted-average of the significant unobservable inputs used to fair value our mortgage servicing assets during the third quarter of 2013 and 2012, along with the valuation techniques, are shown in the following table:


September 30, 2013		Significant	Range
dollars in millions	Valuation Technique	Unobservable Input	(Weighted-Average)
Mortgage servicing assets	Discounted cash flow	Prepayment speed	0.00 - 25.00% (6.20%)
		Expected defaults	1.10 - 3.00% (2.10%)
		Residual cash flows discount rate	7.00 - 15.00% (8.00%)
		Value assigned to escrow funds	0.35 - 3.58% (1.90%)
		Servicing cost	150 - 9,296 (1,039)
		Loan assumption rate	0.00 - 3.00% (1.54%)
		Percentage late	0.00 - 2.00% (0.33%)


September 30, 2012		Significant	Range
dollars in millions	Valuation Technique	Unobservable Input	(Weighted-Average)
Mortgage servicing assets	Discounted cash flow	Prepayment speed	0.00 - 25.00% (10.40%)
		Expected defaults	1.00 - 3.00% (2.40%)
		Residual cash flows discount rate	7.00 - 15.00% (9.20%)
		Value assigned to escrow funds	0.27 - 2.78% (1.50%)
		Servicing cost	950 - 20,200 (2,582)
		Loan assumption rate	0.00 - 3.00% (2.24%)
		Percentage late	0.00 - 2.00% (0.22%)

If these economic assumptions change or prove incorrect, the fair value of mortgage servicing assets may as a result change in the future. The volume of loans serviced, expected credit losses, and the value assigned to escrow deposits are critical to the valuation of servicing assets. At September 30, 2013, a 1.00% decrease in the value assigned to the escrow deposits would cause a $51 million decrease in the fair value of our mortgage servicing assets. An increase in the assumed default rate of commercial mortgage loans of 1.00% would cause a $2 million decrease in the fair value of our mortgage servicing assets.

Contractual fee income from servicing commercial mortgage loans totalled $87 million for the nine-month period ended September 30, 2013 and $67 million for the nine-month period ended September 30, 2012. We have elected to account for servicing assets using the amortization method. The amortization of servicing assets is determined in proportion to, and over the period of, the estimated net servicing income. The amortization of servicing assets for each period, as shown in the preceding table, is recorded as a reduction to fee income. Both the contractual fee income and the amortization are recorded in “other income” on the income statement.

Additional information pertaining to the accounting for mortgage and other servicing assets is included in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Servicing Assets” on page 125 of our 2012 Form 10-K and Note 11 (“Acquisitions and Discontinued Operations”) under the heading “Education lending” in this report.