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MORTGAGE BANKING (Tables)

9 Months Ended

Sep. 30, 2019

The following table summarizes activity related to residential mortgage loans sold with servicing rights retained:



	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2019		2018		2019		2018
Residential mortgage loans sold with servicing retained		$6,117		$1,848		$13,265		$3,173
Gain on sales ⁽¹⁾	88		29		180		59
Contractually specified servicing, late and other ancillary fees⁽¹⁾	53		38		152		69

⁽¹⁾ Reported in mortgage banking fees on the Consolidated Statements of Operations.

Schedule of valuation allowance for impairment of recognized servicing assets

The following table summarizes changes in MSRs recorded using the amortization method:



	As of and for the Three Months Ended September 30,						As of and for the Nine Months Ended September 30,
(in millions)	2019			2018			2019			2018
Mortgage servicing rights:
Balance as of beginning of period		$203			$217			$221			$201
Amount capitalized	—			11			—			26
Purchases	—			—			—			16
Amortization	(11		)	(9		)	(29		)	(24		)
Carrying amount before valuation allowance	192			219			192			219
Valuation allowance for servicing assets:
Balance as of beginning of period	14			—			—			3
Valuation charge-offs (recoveries)	1			—			15			(3		)
Balance at end of period	15			—			15			—
Net carrying value of MSRs		$177			$219			$177			$219

Servicing asset at amortized cost

The following table summarizes changes in MSRs recorded using the amortization method:



	As of and for the Three Months Ended September 30,						As of and for the Nine Months Ended September 30,
(in millions)	2019			2018			2019			2018
Mortgage servicing rights:
Balance as of beginning of period		$203			$217			$221			$201
Amount capitalized	—			11			—			26
Purchases	—			—			—			16
Amortization	(11		)	(9		)	(29		)	(24		)
Carrying amount before valuation allowance	192			219			192			219
Valuation allowance for servicing assets:
Balance as of beginning of period	14			—			—			3
Valuation charge-offs (recoveries)	1			—			15			(3		)
Balance at end of period	15			—			15			—
Net carrying value of MSRs		$177			$219			$177			$219

Servicing asset at fair value

The following table summarizes changes in MSRs recorded using the fair value method:



	As of and for the Three Months Ended September 30,						As of and for the Nine Months Ended September 30,
(in millions)	2019			2018			2019			2018
Fair value as of beginning of the period		$531			$—			$600			$—
Acquired MSRs	—			590			—			590
Amounts capitalized	78			29			170			29
Changes in unpaid principal balance during the period ⁽¹⁾	(31		)	(12		)	(88		)	(12		)
Changes in fair value during the period ⁽²⁾	(68		)	5			(172		)	5
Fair value at end of the period		$510			$612			$510			$612

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

loans that paid off during the period.

⁽²⁾ Represents changes in value primarily due to market driven changes in interest rates and prepayment speeds.

Schedule of fair value assumptions used to estimate the value of Mortgage Servicing Rights

For MSRs under the amortization method, key economic assumptions used to estimate the fair value are presented below:



	September 30, 2019			December 31, 2018
	Actual	Decline in fair value due to		Actual	Decline in fair value due to
(dollars in millions)	Actual	Decline in fair value due to		Actual	Decline in fair value due to
Fair value	$178	50 bps adverse change	100 bps adverse change	$243	50 bps adverse change	100 bps adverse change
Weighted average life (in years)	5.6	50 bps adverse change	100 bps adverse change	6.5	50 bps adverse change	100 bps adverse change
Weighted average constant prepayment rate	11.6%	$25	$45	8.5%	$24	$56
Weighted average discount rate	9.3%	3	6	9.3%	5	9

For MSRs under the fair value method, key economic assumptions used to estimate the fair value are presented below:



	September 30, 2019			December 31, 2018
	Actual	Decline in fair value due to		Actual	Decline in fair value due to
(dollars in millions)	Actual	Decline in fair value due to		Actual	Decline in fair value due to
Fair value	$510	50 bps adverse change	100 bps adverse change	$600	50 bps adverse change	100 bps adverse change
Weighted average life (in years)	4.8	50 bps adverse change	100 bps adverse change	8.0	50 bps adverse change	100 bps adverse change
Weighted average constant prepayment rate	17.6%	$133	$263	8.2%	$68	$148
Weighted average option adjusted spread	325 bps	9	19	609 bps	13	26