Mortgage Servicing Rights (Tables)

9 Months Ended

Sep. 30, 2021

Transfers and Servicing [Abstract]

Changes in the Fair Value of Residential First Mortgage MSRs

Changes in the fair value of residential first mortgage MSRs were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(Dollars in millions)
Balance at beginning of period	$	342	$	261	$	329	$	291
Additions from loans sold with servicing retained	67		85		196		209
Reductions from sales	(62)		—		(158)		(46)
Decrease in MSR fair value due to pay-offs, pay-downs, run-off, model changes, and other (1)	(14)		(25)		(85)		(74)
Changes in estimates of fair value due to interest rate risk (1) (2)	7		2		58		(57)
Fair value of MSRs at end of period	$	340	$	323	$	340	$	323

(1)Changes in fair value are included within net return on mortgage servicing rights on the Consolidated Statements of Operations.

(2)Represents estimated MSR value change resulting primarily from market-driven changes which we manage through the use of derivatives.

Summary of Adverse Changes to Weighted-Average Assumptions on the Fair Value of Servicing Rights

The following table summarizes the hypothetical effect on the fair value of servicing rights using adverse changes of 10 percent and 20 percent to the weighted average of certain significant assumptions used in valuing these assets:

	September 30, 2021							December 31, 2020
				Fair value							Fair value
	Actual			10% adverse change		20% adverse change		Actual			10% adverse change		20% adverse change
	(Dollars in millions)
Option adjusted spread	8.38		%	$	331	$	322	7.98		%	$	321	$	313
Constant prepayment rate	9.07		%	323		307		10.53		%	305		283
Weighted average cost to service per loan	$	79.61		336		332		$	81.24		325		321

Summary of Income and Fees

The following table summarizes income and fees associated with owned MSRs:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(Dollars in millions)
Net return (loss) on mortgage servicing rights
Servicing fees, ancillary income and late fees (1)	$	27	$	30	$	87	$	75
Decreases in MSR fair value due to pay-offs, pay-downs, run-off, model changes, and other	(14)		(25)		(85)		(74)
Changes in fair value due to interest rate risk	7		2		58		(57)
Gain (loss) on MSR derivatives (2)	(5)		4		(43)		68
Net transaction costs	(6)		1		(13)		(2)
Total return included in net return on mortgage servicing rights	$	9	$	12	$	4	$	10

(1)Servicing fees are recorded on an accrual basis. Ancillary income and late fees are recorded on a cash basis.

(2)Changes in the derivatives utilized as economic hedges to offset changes in fair value of the MSRs.

    The following table summarizes income and fees associated with our mortgage loans subserviced for others:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(Dollars in millions)
Loan administration income on mortgage loans subserviced
Servicing fees, ancillary income and late fees (1)	$	36	$	33	$	101	$	94
Charges on subserviced custodial balances (2)	(3)		(3)		(8)		(26)
Other servicing charges	(3)		(4)		(8)		(9)
Total income on mortgage loans subserviced, included in loan administration	$	30	$	26	$	85	$	59

(1)Servicing fees are recorded on an accrual basis. Ancillary income and late fees are recorded on cash basis.

(2)Charges on subserviced custodial balances represent interest due to the MSR owner.