Mortgage Servicing Rights

12 Months Ended

Dec. 31, 2011

Mortgage Servicing Rights [Abstract]

Mortgage Servicing Rights

Note 15 — Mortgage Servicing Rights

The Company has obligations to service residential first mortgage loans. Prior to December 31, 2010, the Company had obligations to service consumer loans (HELOC and second mortgage loans) resulting from private-label securitization transactions. A description of these classes of servicing assets follows.

Residential mortgage servicing rights.  Servicing of residential first mortgage loans is a significant business activity of the Company. The Company recognizes MSR assets on residential first mortgage loans when it retains the obligation to service these loans upon sale. MSRs are subject to changes in value from, among other things, changes in interest rates, prepayments of the underlying loans and changes in credit quality of the underlying portfolio. The Company utilizes the fair value option for residential first mortgage servicing rights. As such, the Company currently specifically hedges certain risks of fair value changes of MSRs using derivative instruments that are intended to change in value inversely to part or all of the changes in the components underlying the fair value of MSRs.

Changes in the carrying value of residential first mortgage MSRs, accounted for at fair value, were as follows:

	For the Years Ended December 31,
	2011			2010			2009
	(In thousands)
Balance at beginning of period	$	580,299		$	649,133		$	511,294
Additions from loans sold with servicing retained		254,824			239,395			336,240
Reductions from bulk sales(1)		(88,828	)		(137,392	)		(124,147	)
Changes in fair value due to:
Payoffs(2)		(67,881	)		(80,118	)		(126,557	)
All other changes in valuation inputs or assumptions(3)		(167,939	)		(90,719	)		52,303
Fair value of MSRs at end of period	$	510,475		$	580,299		$	649,133
Unpaid principal balance of residential mortgage loans serviced for others	$	63,770,676		$	56,040,063		$	56,521,902

(1) Includes bulk sales related to underlying serviced loans totaling $9.2 billion, $13.4 billion and $14.6 billion, respectively, for the years ended December 31, 2011, 2010 and 2009.

(2) Represents decrease in MSR value associated with loans that paid off during the period.

(3) Represents estimated MSR value change resulting primarily from market-driven changes in interest rates.

The fair value of residential MSRs is estimated using a valuation model that calculates the present value of estimated future net servicing cash flows, taking into consideration expected mortgage loan prepayment rates, discount rates, servicing costs, and other economic factors, which are determined based on current market conditions. The Company periodically obtains third-party valuations of its residential MSRs to assess the reasonableness of the fair value calculated by the valuation model.

The key economic assumptions used in determining the fair value of MSRs capitalized during the years ended December 31, 2011, 2010 and 2009 were as follows:

	For the Years Ended December 31,
	2011			2010			2009
Weighted-average life (in years)		5.9			5.4			5.6
Weighted-average constant prepayment rate (CPR)		18.7	%		22.2	%		23.0	%
Weighted-average discount rate		7.6	%		7.8	%		8.3	%

The key economic assumptions used in determining the fair value of MSRs at year end were as follows:

	December 31,
	2011			2010			2009
Weighted-average life (in years)		4.5			5.8			5.9
Weighted-average (CPR)		21.6	%		16.9	%		13.8	%
Weighted-average discount rate		7.2	%		9.1	%		8.9	%

Consumer servicing assets.  Consumer servicing assets represent servicing rights related to HELOC and second mortgage loans that were created in the Company’s private-label securitizations. These servicing assets are initially measured at fair value and subsequently accounted for using the amortization method. Under this method, the assets are amortized in proportion to and over the period of estimated servicing income and are evaluated for impairment on a periodic basis. When the carrying value exceeds the fair value, a valuation allowance is established by a charge to loan administration income in the Consolidated Statements of Operations.

The fair value of consumer servicing assets is estimated by using an internal valuation model. This method is based on calculating the present value of estimated future net servicing cash flows, taking into consideration discount rates, actual and expected loan prepayment rates, servicing costs and other economic factors.

During the fourth quarter of 2010, the Company transferred its mortgage servicing rights with respect to its private-label securitizations, i.e., related to HELOC and second mortgage loans, to a third-party servicer pursuant to the terms of the applicable servicing agreements. As a result, for the year ended December 31, 2011, the Company did not hold any mortgage servicing rights related to such securitizations.

Changes in the carrying value of the consumer servicing assets and the associated valuation allowance follow:

	For the Years Ended December 31,
	2010			2009
	(Dollars in thousands)
Consumer servicing assets
Balance at beginning of period	$	7,049		$	9,469
Amortization		(949	)		(2,420	)
Carrying value before valuation allowance at end of period		6,100			7,049
Valuation allowance
Balance at beginning of period		(3,808	)		—
Impairment recoveries (charges)		(961	)		(3,808	)
Reduction from transfer of servicing(1)		(1,331	)		—
Balance at end of period		(6,100	)		(3,808	)
Net carrying value of servicing assets at end of period	$	—		$	3,241
Unpaid principal balance of consumer loans serviced for others	$	—		$	949,677
Fair value of servicing assets:
Beginning of period	$	3,523		$	12,284
End of period	$	—		$	3,523

(1) Reflects the transfer of mortgage servicing rights related to the Company’s private-label securitizations.

The key economic assumptions used to estimate the fair value of these servicing assets were as follows:

	December 31,
	2010			2009
Weighted-average life (in years)		—			2.9
Weighted-average discount rate		—	%		11.7	%

Contractual servicing fees.  Contractual servicing fees, including late fees and ancillary income, for each type of loan serviced are presented below. Contractual servicing fees are included within loan administration income on the Consolidated Statements of Operations.

	For the Years Ended December 31,
	2011		2010		2009
	(Dollars in thousands)
Residential real estate	$	169,884	$	151,145	$	152,732
Consumer		211		3,197		5,570
Total	$	170,095	$	154,342	$	158,302