Servicing Activities

Mortgage Servicing Rights

The following table summarizes activity related to MSRs, which are carried at fair value. Although there are limited market transactions that are directly observable, management estimates fair value based on the price it believes would be received to sell the MSR asset in an orderly transaction under current market conditions.



Three months ended March 31, ($ in millions)	2012			2011
Estimated fair value at January 1,	$	2,519		$	3,738
Additions recognized on sale of mortgage loans	75			184
Additions from purchases of servicing rights	—			2
Subtractions from sales of servicing assets	—			(266		)
Changes in fair value
Due to changes in valuation inputs or assumptions used in the valuation model	163			297
Other changes in fair value	(162		)	(181		)
Estimated fair value at March 31,	$	2,595		$	3,774

Changes in fair value due to changes in valuation inputs or assumptions used in the valuation model include all changes due to a revaluation by a model or by a benchmarking exercise. Other changes in fair value primarily include the accretion of the present value of the discount related to forecasted cash flows and the economic runoff of the portfolio. Refer to Note 1 to the Consolidated Financial Statements in our 2011 Annual Report on Form 10-K for additional information regarding our significant assumptions and valuation techniques used in the valuation of mortgage servicing rights.

The key economic assumptions and sensitivity of the fair value of MSRs to immediate 10% and 20% adverse changes in those assumptions were as follows.



($ in millions)	March 31, 2012			December 31, 2011
Weighted average life (in years)	5.2			4.7
Weighted average prepayment speed	12.1		%	15.7		%
Impact on fair value of 10% adverse change	$	(181	)	$	(135	)
Impact on fair value of 20% adverse change	(345		)	(257		)
Weighted average discount rate	12.0		%	10.2		%
Impact on fair value of 10% adverse change	$	(65	)	$	(59	)
Impact on fair value of 20% adverse change	(125		)	(114		)

These sensitivities are hypothetical and should be considered with caution. Changes in fair value based on a 10% and 20% variation in assumptions generally cannot be extrapolated because the relationship of the change in assumptions to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another (e.g., increased market interest rates may result in lower prepayments and increased credit losses) that could magnify or counteract the sensitivities. Further, these sensitivities show only the change in the asset balances and do not show any expected change in the fair value of the instruments used to manage the interest rates and prepayment risks associated with these assets.

Risk Mitigation Activities

The primary risk of our servicing rights is interest rate risk and the resulting impact on prepayments. A significant decline in interest rates could lead to higher-than-expected prepayments that could reduce the value of the MSRs. We economically hedge the impact of these risks with both derivative and nonderivative financial instruments. Refer to Note 19 for additional information regarding the derivative financial instruments used to economically hedge MSRs.

The components of servicing valuation and hedge activities, net, were as follows.



	Three months ended March 31,
($ in millions)	2012		2011
Change in estimated fair value of mortgage servicing rights	$	1	$	117
Change in fair value of derivative financial instruments	8		(204		)
Servicing valuation and hedge activities, net	$	9	$	(87	)

Mortgage Servicing Fees

The components of mortgage servicing fees were as follows.



	Three months ended March 31,
($ in millions)	2012		2011
Contractual servicing fees, net of guarantee fees and including subservicing	$	226	$	257
Late fees	19		21
Ancillary fees	35		33
Total mortgage servicing fees	$	280	$	311

Mortgage Servicing Advances

In connection with our primary servicing activities (i.e., servicing of mortgage loans), we make certain payments for property taxes and insurance premiums, default and property maintenance payments, as well as advances of principal and interest payments before collecting them from individual borrowers. Servicing advances including contractual interest, are priority cash flows in the event of a loan principal reduction or foreclosure and ultimate liquidation of the real estate-owned property, thus making their collection reasonably assured. These servicing advances are included in other assets on the Condensed Consolidated Balance Sheet and totaled $1.8 billion and $1.9 billion at March 31, 2012, and December 31, 2011, respectively. We maintain an allowance for uncollected primary servicing advances of $43 million at both March 31, 2012, and December 31, 2011. Our potential obligation is influenced by the loan’s performance and credit quality.

When we act as a subservicer of mortgage loans we perform the responsibilities of a primary servicer but do not own the corresponding primary servicing rights. We receive a fee from the primary servicer for such services. As the subservicer, we would have the same responsibilities of a primary servicer in that we would make certain payments of property taxes and insurance premiums, default and property maintenance, as well as advances of principal and interest payments before collecting them from individual borrowers. At March 31, 2012, and December 31, 2011, outstanding servicer advances related to subserviced loans were $127 million and $125 million, respectively, and we had a reserve for uncollected subservicer advances of $1.0 million and $1.1 million, respectively.

In many cases, where we act as master servicer, we also act as primary servicer. In connection with our master-servicing activities, we service the mortgage-backed and mortgage-related asset-backed securities and whole-loan packages sold to investors. As the master servicer, we collect mortgage loan payments from primary servicers and distribute those funds to investors in the mortgage-backed and mortgage-related asset-backed securities and whole-loan packages. As the master servicer, we are required to advance scheduled payments to the securitization trust or whole-loan investors. To the extent the primary servicer does not advance the payments, we are responsible for advancing the payment to the trust or whole-loan investors. Master-servicing advances, including contractual interest, are priority cash flows in the event of a default, thus making their collection reasonably assured. In most cases, we are required to advance these payments to the point of liquidation of the loan or reimbursement of the trust or whole-loan investors. We had outstanding master-servicing advances of $190 million and $158 million at March 31, 2012, and December 31, 2011, respectively. We had no reserve for uncollected master-servicing advances at March 31, 2012, or December 31, 2011.

Serviced Mortgage Assets

The unpaid principal balance of our serviced mortgage assets was as follows.



($ in millions)	March 31, 2012		December 31, 2011
On-balance sheet mortgage loans
Held-for-sale and investment	$	17,115	$	18,871
Operations held-for-sale	436		541
Off-balance sheet mortgage loans
Loans sold to third-party investors
Private-label	48,514		50,886
GSEs	255,053		262,868
Whole-loan	14,484		15,105
Purchased servicing rights	3,089		3,247
Operations held-for-sale	5,213		4,912
Total primary serviced mortgage loans	343,904		356,430
Subserviced mortgage loans	28,423		26,358
Subserviced operations held-for-sale	2		4
Total subserviced mortgage loans	28,425		26,362
Master-servicing-only mortgage loans	8,225		8,557
Total serviced mortgage loans	$	380,554	$	391,349

Our Mortgage operations that conduct primary and master-servicing activities are required to maintain certain servicer ratings in accordance with master agreements entered into with GSEs. At March 31, 2012, our Mortgage operations were in compliance with the servicer-rating requirements of the master agreements.

At March 31, 2012, domestic insured private-label securitizations with an unpaid principal balance of $5.4 billion contains provisions entitling the monoline or other provider of contractual credit support (surety providers) to declare a servicer default and terminate the servicer upon the failure of the loans to meet certain portfolio delinquency and/or cumulative loss thresholds. Securitizations with an unpaid principal balance of $4.8 billion had breached a delinquency and/or cumulative loss threshold. We continue to receive service fee income with respect to these securitizations. Securitizations with an unpaid principal balance of $574 million have not yet breached a delinquency or cumulative loss threshold. The value of the related MSR is $4 million at March 31, 2012. Refer to Note 24 for additional information.

Automobile Servicing Activities

We service consumer automobile contracts. Historically, we have sold a portion of our consumer automobile contracts. With respect to contracts we sell, we retain the right to service and earn a servicing fee for our servicing function. Typically, we conclude that the fee we are paid for servicing consumer automobile finance receivables represents adequate compensation, and consequently, we do not recognize a servicing asset or liability. We recognized automobile servicing fees of $30 million and $46 million during the three months ended March 31, 2012 and 2011, respectively.

Automobile Serviced Assets

The total serviced automobile loans outstanding were as follows.



($ in millions)	March 31, 2012		December 31, 2011
On-balance sheet automobile loans and leases
Consumer automobile	$	67,837	$	63,884
Commercial automobile	39,136		37,302
Operating leases	10,048		9,275
Operations held-for-sale	68		102
Off-balance sheet automobile loans
Loans sold to third-party investors
Whole-loan	10,456		12,318
Total serviced automobile loans and leases	$	127,545	$	122,881