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MORTGAGE BANKING AND OTHER SERVICED LOANS
 12 Months Ended
Dec. 31, 2023
Mortgage Banking [Abstract]  
MORTGAGE BANKING AND OTHER SERVICED LOANS
NOTE 8 - MORTGAGE BANKING AND OTHER SERVICED LOANS
The Company sells residential mortgages into the secondary market and retains no beneficial interest in these sales, but may retain the servicing rights for the loans sold. The Company may exercise its option to repurchase eligible government guaranteed residential mortgages or may be obligated to subsequently repurchase a loan if the purchaser discovers a representation or warranty violation such as noncompliance with eligibility or servicing requirements, or customer fraud that should have been identified in a loan file review.
Mortgage loans held for sale are accounted for at fair value on an individual loan basis. Changes in the fair value and realized gains and losses on the sales of mortgage loans, are reported in mortgage banking fees.
The following table summarizes activity related to residential mortgage loans sold with servicing rights retained:
Year Ended December 31,
(dollars in millions)202320222021
Cash proceeds from residential mortgage loans sold with servicing retained$9,124 $17,025 $37,039 
Repurchased residential mortgages(1)
— 87 1,381 
Gain on sales(2)
72 86 382 
Contractually specified servicing, late and other ancillary fees(2)
309 287 247 
(1) Includes government insured or guaranteed loans repurchased through the exercise of the Company’s removal of account provision option.
(2) Reported in mortgage banking fees in the Consolidated Statements of Operations.
The Company recognizes the right to service residential mortgage loans for others, or MSRs, when purchased or when servicing is contractually separated from the underlying mortgage loans sold with servicing rights retained. MSRs are reported in other assets in the Consolidated Balance Sheets. MSRs are measured using the fair value method, with any change in fair value during the period recorded in mortgage banking fees in the Consolidated Statements of Operations. The unpaid principal balance of residential mortgage loans related to our MSRs was $97.4 billion and $96.7 billion at December 31, 2023 and 2022, respectively. The Company manages the risk associated with changes in the value of the MSRs with an active economic hedging strategy, which includes the purchase of freestanding derivatives.
The following table summarizes changes in MSRs recorded using the fair value method:
As of and for the Year Ended December 31,
(dollars in millions)20232022
Fair value as of beginning of the period$1,530 $1,029 
Amounts capitalized127 279 
Servicing rights acquired
— 16 
Changes in unpaid principal balance during the period(1)
(166)(137)
Changes in fair value during the period(2)
61 343 
Fair value at end of the period$1,552 $1,530 
(1) Represents changes in value of the MSRs 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 driven by market conditions. These changes are recorded in mortgage banking fees in the Consolidated Statements of Operations.

The fair value of MSRs is estimated by using the present value of estimated future net servicing cash flows, taking into consideration actual and expected mortgage loan prepayment rates, discount rates, contractual servicing fee income, servicing costs, default rates, ancillary income, and other economic factors, which are determined based on current market interest rates. The valuation does not attempt to forecast or predict the future direction of interest rates.
The sensitivity analysis below presents the impact of an immediate 10% and 20% adverse change in key economic assumptions to the current fair value of MSRs. These sensitivities are hypothetical, with the effect of a variation in a particular assumption on the fair value of the MSRs calculated independently without changing any other assumption. Changes in one factor may result in changes in another (e.g., changes in interest rates, which drive changes in prepayment rates, could result in changes in discount rates), which may amplify or counteract the sensitivities. The primary risk inherent in the Company’s MSRs is an increase in prepayments of the underlying mortgage loans serviced, which is largely dependent upon movements in market interest rates.
(dollars in millions)December 31, 2023December 31, 2022
Fair value$1,552$1,530
Weighted average life (years)8.89.1
Weighted average constant prepayment rate7.2%6.8%
Decline in fair value from 10% adverse change
$37$34
Decline in fair value from 20% adverse change
$71$66
Weighted average option adjusted spread630 bps629 bps
Decline in fair value from 10% adverse change
$43$43
Decline in fair value from 20% adverse change
$87$86
    
The Company’s mortgage banking derivatives include commitments to originate mortgages held for sale, certain loan sale agreements, and other financial instruments that meet the definition of a derivative. Refer to Note 14 for additional information.
Other Serviced Loans
Citizens engages in other servicing relationships from time to time. The following table presents the unpaid principal balance of other serviced loans:
(dollars in millions)December 31, 2023December 31, 2022
Education$502 $602 
Commercial and industrial(1)
94 91 
(1) Represents the government guaranteed portion of SBA loans sold to outside investors.