Mortgage Servicing Rights

12 Months Ended

Dec. 31, 2023


NOTE 10						Mortgage Servicing Rights

The Company capitalizes MSRs as separate assets when loans are sold and servicing is retained. MSRs may also be purchased from others. The Company carries MSRs at fair value, with changes in the fair value recorded in earnings during the period in which they occur. The Company serviced $233.4 billion of residential mortgage loans for others at December 31, 2023, and $243.6 billion at December 31, 2022, including subserviced mortgages with no corresponding MSR asset. Included in mortgage banking revenue are the MSR fair value changes arising from market

rate and model assumption changes, net of the value change in derivatives used to economically hedge MSRs. These changes resulted in net losses of $41 million, $45 million and $183 million for the years ended December 31, 2023, 2022 and 2021, respectively. Loan servicing and ancillary fees, not including valuation changes, included in mortgage banking revenue were $733 million, $754 million and $725 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Changes in fair value of capitalized MSRs are summarized as follows:


(Dollars in Millions)	2023		2022		2021
Balance at beginning of period	$	3,755	$	2,953	$	2,210
Rights purchased	5		156		42
Rights capitalized	373		590		1,136
Rights sold(a)	(440)		(255)		2
Changes in fair value of MSRs
Due to fluctuations in market interest rates(b)	66		804		272
Due to revised assumptions or models(c)	12		(29)		(196)
Other changes in fair value(d)	(394)		(464)		(513)
Balance at end of period	$	3,377	$	3,755	$	2,953

(a)MSRs sold include those having a negative fair value, resulting from the loans being severely delinquent.

(b)Includes changes in MSR value associated with changes in market interest rates, including estimated prepayment rates and anticipated earnings on escrow deposits.

(c)Includes changes in MSR value not caused by changes in market interest rates, such as changes in assumed cost to service, ancillary income and option adjusted spread, as well as the impact of any model changes.

(d)Primarily the change in MSR value from passage of time and cash flows realized (decay), but also includes the impact of changes to expected cash flows not associated with changes in market interest rates, such as the impact of delinquencies.

The estimated sensitivity to changes in interest rates of the fair value of the MSR portfolio and the related derivative instruments as of December 31 follows:


	2023												2022
(Dollars in Millions)	Down 100 bps		Down 50 bps		Down 25 bps		Up 25 bps		Up 50 bps		Up 100 bps		Down 100 bps		Down 50 bps		Down 25 bps		Up 25 bps		Up 50 bps		Up 100 bps
MSR portfolio	$	(370)	$	(173)	$	(84)	$	77	$	147	$	268	$	(334)	$	(153)	$	(73)	$	66	$	125	$	224
Derivative instrument hedges	381		178		86		(79)		(152)		(289)		337		153		73		(67)		(127)		(236)
Net sensitivity	$	11	$	5	$	2	$	(2)	$	(5)	$	(21)	$	3	$	—	$	—	$	(1)	$	(2)	$	(12)

The fair value of MSRs and their sensitivity to changes in interest rates is influenced by the mix of the servicing portfolio and characteristics of each segment of the portfolio. The Company’s servicing portfolio consists of the distinct portfolios of government-insured mortgages, conventional mortgages and Housing Finance Agency (“HFA”) mortgages. The servicing portfolios are predominantly comprised of fixed-rate agency loans with limited adjustable-

rate or jumbo mortgage loans. The HFA servicing portfolio is comprised of loans originated under state and local housing authority program guidelines which assist purchases by first-time or low- to moderate-income homebuyers through a favorable rate subsidy, down payment and/or closing cost assistance on government- and conventional-insured mortgages.

A summary of the Company’s MSRs and related characteristics by portfolio as of December 31 follows:


	2023												2022
(Dollars in Millions)	HFA			Government			Conventional(d)			Total			HFA			Government			Conventional(d)			Total
Servicing portfolio(a)	$	48,286		$	25,996		$	151,056		$	225,338		$	44,071		$	23,141		$	172,541		$	239,753
Fair value	$	769		$	507		$	2,101		$	3,377		$	725		$	454		$	2,576		$	3,755
Value (bps)(b)	159			195			139			150			165			196			149			157
Weighted-average servicing fees (bps)	36			44			26			30			36			42			27			30
Multiple (value/servicing fees)	4.45			4.41			5.41			5.00			4.56			4.69			5.52			5.20
Weighted-average note rate	4.56		%	4.23		%	3.81		%	4.02		%	4.16		%	3.81		%	3.52		%	3.67		%
Weighted-average age (in years)	4.3			5.5			4.3			4.4			4.0			5.7			3.7			3.9
Weighted-average expected prepayment (constant prepayment rate)	10.5		%	11.1		%	9.1		%	9.6		%	7.4		%	8.5		%	7.8		%	7.8		%
Weighted-average expected life (in years)	7.2			6.5			7.0			7.0			8.8			7.6			7.5			7.7
Weighted-average option adjusted spread(c)	5.4		%	5.9		%	4.6		%	4.9		%	7.6		%	6.9		%	5.1		%	5.8		%

(a)Represents principal balance of mortgages having corresponding MSR asset.

(b)Calculated as fair value divided by the servicing portfolio.

(c)Option adjusted spread is the incremental spread added to the risk-free rate to reflect optionality and other risk inherent in the MSRs.

(d)Represents loans sold primarily to GSEs.