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Mortgage Servicing Rights
 6 Months Ended
Jun. 30, 2022
Transfers and Servicing [Abstract]  
Mortgage Servicing Rights Mortgage Servicing Rights    We have investments in MSRs that result from the sale of loans to the secondary market for which we retain the servicing. We account for MSRs at their fair value. A primary risk associated with MSRs is the potential reduction in fair value as a result of higher than anticipated prepayments due to loan refinancing prompted, in part, by declining interest rates or government intervention. Conversely, these assets generally increase in value in a rising interest rate environment to the extent that prepayments are slower than anticipated. We utilize derivatives as economic hedges to offset changes in the fair value of the MSRs resulting from the actual or anticipated changes in prepayments stemming from changing interest rate environments. There is also a risk of valuation decline due to higher than expected default rates, which we do not believe can be effectively managed using derivatives. For further information regarding the derivative instruments utilized to manage our MSR risks, see Note 8 - Derivative Financial Instruments.
Changes in the fair value of residential first mortgage MSRs were as follows:
 Three Months Ended June 30,Six Months Ended June 30,
 2022202120222021
(Dollars in millions)
Balance at beginning of period$523 $428 $392 $329 
Additions from loans sold with servicing retained74 64 153 129 
Purchases23 — 36 — 
Reductions from sales(32)(96)(32)(96)
Decrease in MSR fair value due to pay-offs, pay-downs, run-off, model changes, and other (1)(15)(32)(23)(71)
Changes in estimates of fair value due to interest rate risk (1) (2)49 (22)96 51 
Fair value of MSRs at end of period$622 $342 $622 $342 
(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.

    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:
June 30, 2022December 31, 2021
Fair valueFair value
Actual10% adverse change20% adverse changeActual10% adverse change20% adverse change
(Dollars in millions)
Option adjusted spread6.16 %$609 $597 7.12 %$383 $374 
Constant prepayment rate7.95 %603 585 9.24 %373 355 
Weighted average cost to service per loan$79.39 615 608 $79.38 387 383 

    The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. Changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. To isolate the effect of the specified change, the fair value shock analysis is consistent with the identified adverse change, while holding all other assumptions constant. In practice, a change in one assumption generally impacts other assumptions, which may either magnify or counteract the effect of the change. For further information on the fair value of MSRs, see Note 16 - Fair Value Measurements.

    Contractual servicing and subservicing fees. Contractual servicing and subservicing fees, including late fees and other ancillary income are presented below. Contractual servicing fees are included within net return on mortgage servicing rights on the Consolidated Statements of Operations. Contractual subservicing fees including late fees and other ancillary income are included within loan administration income on the Consolidated Statements of Operations. Subservicing fee income is recorded for fees earned on subserviced loans, net of third-party subservicing costs.

    The following table summarizes income and fees associated with owned MSRs:
 Three Months Ended June 30,Six Months Ended June 30,
 2022202120222021
(Dollars in millions)
Net return (loss) on mortgage servicing rights
Servicing fees, ancillary income and late fees (1)$32 $29 $62 $60 
Decreases in MSR fair value due to pay-offs, pay-downs, run-off, model changes, and other(15)(32)(23)(71)
Changes in fair value due to interest rate risk49 (22)96 51 
Loss on MSR derivatives (2)(43)27 (84)(38)
Net transaction costs(1)(7)— (7)
Total return included in net return on mortgage servicing rights$22 $(5)$51 $(5)
(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 June 30,Six Months Ended June 30,
 2022202120222021
 (Dollars in millions)
Loan administration income on mortgage loans subserviced
Servicing fees, ancillary income and late fees (1)$37 $33 $74 $65 
Charges on subserviced custodial balances (2)(4)(2)(6)(5)
Other servicing charges— (2)(2)(5)
Total income on mortgage loans subserviced, included in loan administration$33 $29 $66 $55 
(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.