Note 5 — Mortgage Servicing Rights

FHN recognizes all classes of mortgage servicing rights ("MSR") at fair value. Classes of MSR are established based on market inputs used to determine the fair value of the servicing asset and FHN's risk management practices. See Note 16 — Fair Value, the "Determination of Fair Value" section for a discussion of FHN's MSR valuation methodology and Note 15 — Derivatives for a discussion of how FHN hedges the fair value of MSR. The balance of MSR included on the Consolidated Condensed Statements of Condition represents the rights to service approximately $26 billion of mortgage loans on June 30, 2011, for which a servicing right has been capitalized.

In first quarter 2010, FHN adopted the amendments to ASC 810 which resulted in the consolidation of loans FHN previously sold through proprietary securitizations but retained MSR and significant subordinated interests subsequent to the transfer. In conjunction with the consolidation of these loans, FHN derecognized the associated servicing assets which are reflected in the rollforward below. Following is a summary of changes in capitalized MSR for the six months ended June 30, 2011 and 2010:


	First			Second
(Dollars in thousands)	Liens			Liens			HELOC			Total

Fair value on January 1, 2010	$	296,115		$	1,174		$	5,322		$	302,611
Adjustment due to adoption of amendments to ASC 810		(197	)		(928	)		(1,168	)		(2,293	)
Reductions due to loan payments		(16,031	)		(16	)		(611	)		(16,658	)
Reductions due to sale		(24,558	)		—			—			(24,558	)
Changes in fair value due to:
Changes in valuation model inputs or assumptions		(58,366	)		—			—			(58,366	)
Other changes in fair value		990			12			8			1,010

Fair value on June 30, 2010	$	197,953		$	242		$	3,551		$	201,746

Fair value on January 1, 2011	$	203,812		$	262		$	3,245		$	207,319
Reductions due to loan payments		(12,685	)		(21	)		(101	)		(12,807	)
Reductions due to exercise of cleanup calls		(195	)		—			—			(195	)
Changes in fair value due to:
Changes in valuation model inputs or assumptions		(7,418	)		—			—			(7,418	)
Other changes in fair value		16			10			33			59

Fair value on June 30, 2011	$	183,530		$	251		$	3,177		$	186,958

Servicing, late, and other ancillary fees recognized within mortgage banking income were $19.2 million and $26.0 million for the three months ended June 30, 2011 and 2010, respectively, and $40.1 million and $53.7 million for the six months ended June 30, 2011 and 2010, respectively. Servicing, late, and other ancillary fees recognized within other income and commissions were $.6 million and $1.1 million for the three months ended June 30, 2011 and 2010, respectively, and $1.3 million and $2.2 million for the six months ended June 30, 2011 and 2010, respectively.

FHN services a portfolio of mortgage loans related to transfers by other parties utilizing securitization trusts. The servicing assets represent FHN's sole interest in these transactions. The total MSR recognized by FHN related to these transactions was $3.6 million and $5.1 million at June 30, 2011 and 2010, respectively. The aggregate principal balance serviced by FHN for these transactions was $.5 billion and $.7 billion at June 30, 2011 and 2010, respectively. FHN has no obligation to provide financial support and has not provided any form of support to the related trusts. The MSR recognized by FHN has been included in the first lien mortgage loans column within the rollforward of MSR.

In prior periods, FHN transferred MSR to third parties in transactions that did not qualify for sales treatment due to certain recourse provisions that were included within the sale agreements. On June 30, 2011 and 2010, FHN had $23.6 million and $25.9 million, respectively, of MSR related to these transactions. These MSR are included within the first liens mortgage loans column within the rollforward of MSR. The proceeds from these transfers have been recognized within Other short term borrowings and commercial paper in the Consolidated Condensed Statements of Condition.