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Fair Value Measurements (Tables)

12 Months Ended

Dec. 31, 2017

Schedule of assets and liabilities measured at fair value on a recurring basis

The following summarizes the fair value hierarchy for instruments measured at fair value on a recurring basis:



	December 31, 2017
	Level One		Level Two		Level Three		Cash Collateral and Netting		Total
					(In millions)
ASSETS
Mortgage loans held for sale	$	—	$	261	$	9	$	—	$	270
Mortgage servicing rights	—		—		476		—		476
Other assets—Derivative assets:
Interest rate lock commitments	—		—		5		—		5
LIABILITIES
Mortgage servicing rights secured liability	$	—	$	—	$	419	$	—	$	419
Other liabilities:
Liability to deliver MSRs	—		—		2		—		2



	December 31, 2016
	Level One		Level Two		Level Three		Cash Collateral and Netting			Total
					(In millions)
ASSETS
Mortgage loans held for sale	$	—	$	636	$	47	$	—		$	683
Mortgage servicing rights	—		—		690		—			690
Other assets—Derivative assets:
Interest rate lock commitments	—		—		18		—			18
Forward delivery commitments	—		14		—		(12		)	2
MSR-related agreements	—		19		—		(18		)	1
Option Contracts	—		1		—		(1		)	—
LIABILITIES
Other liabilities—Derivative liabilities:
Forward delivery commitments	$	—	$	4	$	—	$	1		$	5
MSR-related agreements	—		65		—		(53		)	12
Option Contracts	—		—		—		1			1

Schedule of difference between the carrying amounts of Mortgage loans held for sale measured at fair value, and the aggregate unpaid principal amount that the Company is contractually entitled to receive at maturity

The following table reflects the difference between the carrying amounts of MLHS measured at fair value, and the aggregate unpaid principal amount that the Company is contractually entitled to receive at maturity:



	December 31, 2017					December 31, 2016
	Total		Loans 90 days or more past due and on non-accrual status			Total			Loans 90 days or more past due and on non-accrual status
	(In millions)
Carrying amount	$	270	$	1		$	683		$	7
Aggregate unpaid principal balance	268		2			687			10
Difference	$	2	$	(1	)	$	(4	)	$	(3	)

Schedule of components of Mortgage loans held for sale

The following table summarizes the components of Mortgage loans held for sale:



	December 31,
	2017		2016
	(In millions)
First mortgages:
Conforming	$	241	$	531
Non-conforming	20		105
Total first mortgages	261		636
Second lien	—		3
Scratch and Dent	9		44
Total	$	270	$	683

Schedule of initial and ending capitalization rate of Mortgage Servicing Rights (MSRs)

The following tables summarize certain information regarding the initial and ending capitalization rate of MSRs:



	Year Ended December 31,
	2017		2016
Initial capitalization rate of additions to MSRs	1.10	%	1.02	%



	December 31,
	2017		2016
MSRs Owned
Capitalization servicing rate	0.67	%	0.82	%
Capitalization servicing multiple	2.3		2.9
Weighted-average servicing fee (in basis points)	29		28
Weighted-average life (years)	5.7		6.3



	December 31, 2017
MSRs Under Secured Borrowing Arrangement
Capitalization servicing rate	0.85	%
Capitalization servicing multiple	3.2
Weighted-average servicing fee (in basis points)	27
Weighted-average life (years)	5.6

Schedule of significant assumptions used in estimating the fair value of Mortgage servicing rights (MSRs)

The significant assumptions used in estimating the fair value of MSRs were as follows (in annual rates):



	December 31,
	2017		2016
MSRs Owned
Weighted-average prepayment speed (CPR)	9.2	%	9.2	%
Option adjusted spread, in basis points (OAS)	393		1,430
Weighted-average delinquency rate	12.4	%	5.1	%



	December 31, 2017
MSRs Under Secured Borrowing Arrangement
Weighted-average prepayment speed (CPR)	11.2	%
Option adjusted spread, in basis points (OAS)	928
Weighted-average delinquency rate	4.0	%

The significant assumptions used in estimating the fair value of MSRs secured liability were as follows (in annual rates):



	December 31, 2017
Weighted-average prepayment speed (CPR)	11.2	%
Option adjusted spread, in basis points (OAS)	928
Weighted-average delinquency rate	4.0	%

Schedule of estimated change in the fair value of MSRs from adverse changes in the significant assumptions

The following table summarizes the estimated change in the fair value of MSRs from adverse changes in the significant assumptions:



	December 31, 2017
	Weighted- Average Prepayment Speed			Option Adjusted Spread			Weighted- Average Delinquency Rate
	(In millions)
MSRs Owned
Impact on fair value of 10% adverse change	$	(3	)	$	(2	)	$	(4	)
Impact on fair value of 20% adverse change	(5		)	(3		)	(9		)

MSRs Under Secured Borrowing Arrangement ⁽¹⁾
Impact on fair value of 10% adverse change	$	(15	)	$	(18	)	$	(6	)
Impact on fair value of 20% adverse change	(29		)	(34		)	(12		)

———————


⁽¹⁾	During 2017, the Company sold MSRs to New Residential, which have been accounted for as a secured borrowing. Any changes in fair value are expected to fully offset between the MSRs secured asset and MSRs secured liability.

Schedule of activity in assets and liabilities classified within Level Three of the valuation hierarchy

Activity of assets and liabilities classified within Level Three of the valuation hierarchy consisted of:



	Year Ended December 31,
	2017															2016
	MLHS			MSRs			IRLCs, net			MSRs Secured Liability			Liability to Deliver MSRs			MLHS			MSRs			IRLCs, net
	(In millions)
Balance, beginning of period	$	47		$	690		$	18		$	—		$	—		$	39		$	880		$	21
Purchases, Issuances, Sales and Settlements:
Purchases	7			—			—			—			—			13			—			—
Issuances	5			36			—			(467		)	—			6			60			—
Sales	(59		)	(131		)	—			—			—			(24		)	(12		)	—
Settlements	(12		)	—			(213		)	29			3			(11		)	—			(318		)
	(59		)	(95		)	(213		)	(438		)	3			(16		)	48			(318		)
Realized and unrealized gains (losses) included in:
Gain on loans held for sale, net	(3		)	—			200			—			(5		)	(1		)	—			315
Change in fair value of MSRs	—			(119		)	—			48			—			—			(238		)	—
Interest income	—			—			—			(29		)	—			3			—			—
	(3		)	(119		)	200			19			(5		)	2			(238		)	315
Transfers into Level Three	41			—			—			—			—			42			—			—
Transfers out of Level Three	(17		)	—			—			—			—			(20		)	—			—
Balance, end of period	$	9		$	476		$	5		$	(419	)	$	(2	)	$	47		$	690		$	18

Schedule of unrealized gains (losses) related to assets and liabilities classified within Level Three of the valuation hierarchy

Unrealized gains (losses) included in the Consolidated Statement of Operations related to assets and liabilities classified within Level Three of the valuation hierarchy that are included in the Consolidated Balance Sheets were as follows:



	Year Ended December 31,
	2017			2016
	(In millions)
Gain on loans held for sale, net	$	3		$	11
Loan servicing income, net	(12		)	(100		)

- Definition

Tabular disclosure of the application of the fair value option for measurement and reporting of eligible financial assets and liabilities (as defined), as well as certain other eligible items (as defined) included in the statement of financial position, whether such option is elected for a single eligible item or a group of similar eligible items and is in addition to other disclosures concerning fair value which the company may be required to provide. Such disclosure might be expected to include: (1) for items included in the statement of financial position: (a) for each line item in the statement of financial position that includes an item or items for which the fair value option has been elected, provide the aggregate carrying amount of ineligible items included in each line item in the balance sheet, if any; (b) the difference between the aggregate fair value and the aggregate unpaid principal balance (assuming contractual principal amounts and fair value option elected) of: (i) loans and long-term receivables (other than securities otherwise reported at fair value) and (ii) long-term debt instruments; (c) for loans held as assets for which the fair value option has been elected: (i) the aggregate fair value of loans that are 90 days or more past due, (ii) if the policy is to recognize interest income separately from other changes in fair value, the aggregate fair value of loans in nonaccrual status, and (iii) the difference between the aggregate fair value and the aggregate unpaid principal balance for loans that are 90 days or more past due, in nonaccrual status, or both; (2) for items included in the income statement: (a) the amounts of gains and losses from fair value changes included in earnings and in which line in the income statement those gains and losses are reported whether or not combined with gains and losses from items required to be accounted for at fair value; (b) for loans and other receivables held as assets, the estimated amount of gains or losses included in earnings attributable to changes in instrument-specific credit risk; (c) for liabilities with fair values that have been significantly affected during the reporting period by changes in the instrument-specific credit risk, the estimated amount of gains and losses from fair value changes included in earnings that are attributable to changes in the instrument-specific credit risk; and (3) certain other disclosures as required or determined to be provided.

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