MORTGAGE LOAN SALES AND SERVICING RIGHTS

3 Months Ended

Mar. 31, 2023

Transfers and Servicing [Abstract]

MORTGAGE LOAN SALES AND SERVICING RIGHTS

MORTGAGE LOAN SALES AND SERVICING RIGHTS

Residential Mortgage Portfolio

The following table summarizes activity relating to residential mortgage loans sold with servicing retained for the three-month periods ended March 31, 2023 and 2022:

	Three Months Ended March 31,
(dollar amounts in millions)	2023		2022
Residential mortgage loans sold with servicing retained	$	862	$	1,934
Pretax gains resulting from above loan sales (1)	7		59

(1)Recorded in mortgage banking income.

The following table summarizes the changes in MSRs recorded using the fair value method for the three-month periods ended March 31, 2023 and 2022:

	Three Months Ended March 31,
(dollar amounts in millions)	2023		2022
Fair value, beginning of period	$	494	$	351
New servicing assets created	13		29
Change in fair value during the period due to:
Time decay (1)	(6)		(5)
Payoffs (2)	(4)		(10)
Changes in valuation inputs or assumptions (3)	(12)		51
Fair value, end of period	$	485	$	416

(1)Represents decrease in value due to passage of time, including the impact from both regularly scheduled principal payments and partial loan paydowns.

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

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

MSRs do not trade in an active, open market with readily observable prices. Therefore, the fair value of MSRs is estimated using a discounted future cash flow model. Changes in the assumptions used may have a significant impact on the valuation of MSRs. MSR values are sensitive to movement in interest rates as expected future net servicing income depends on the projected outstanding principal balances of the underlying loans, which are impacted by the level of prepayments.

A summary of key assumptions and the sensitivity of the MSR value to changes in these assumptions at March 31, 2023, and December 31, 2022 follows:

	At March 31, 2023							At December 31, 2022
				Decline in fair value due to							Decline in fair value due to
(dollar amounts in millions)	Actual			10% adverse change		20% adverse change		Actual			10% adverse change		20% adverse change
Constant prepayment rate (annualized)	7.76	%		$	(13)	$	(26)	7.05	%		$	(13)	$	(25)
Spread over forward interest rate swap rates	575		bps	(11)		(22)		578		bps	(12)		(22)

Total servicing, late and other ancillary fees included in mortgage banking income was $24 million and $22 million for the three-month periods ended March 31, 2023 and 2022, respectively. The unpaid principal balance of residential mortgage loans serviced for third parties was $32.5 billion and $32.4 billion at March 31, 2023 and December 31, 2022, respectively.