Other Assets Held for Sale

6 Months Ended

Jun. 30, 2016

Discontinued Operations and Disposal Groups [Abstract]

Other Assets Held for Sale

Other Assets Held for Sale

In March 2016, our Retail Banking and Wealth Management business initiated an active program to sell its remaining MSRs portfolio which has been in run-off for several years. As a result, we now consider the MSRs portfolio and related servicing advances to be held for sale at June 30, 2016 and reported them in other assets on the consolidated balance sheet. Any sale, which would be subject to regulatory approval, is expected to be completed during the second half of 2016. As the MSRs are carried at fair value and we expect to transfer the related servicing advances to the buyer at near cost, the lower of amortized cost or fair value adjustment recorded associated with this reclassification to held for sale was insignificant.

The disposal group held for sale reported in other assets consisted of the following at June 30, 2016:

	Location on Consolidated Balance Sheet Prior to Reclassification to Held for Sale	June 30, 2016
		(in millions)
Mortgage servicing rights	Intangible assets, net	$	104
Servicing advances	Other assets	209
Total assets held for sale		$	313

MSRs are subject to credit, prepayment and interest rate risk, in that their value will fluctuate as a result of changes in these economic variables. Interest rate risk is mitigated through an economic hedging program that uses securities and derivatives to offset changes in the fair value of MSRs. Since the hedging program involves trading activity, risk is quantified and managed using a number of risk assessment techniques.

MSRs are initially measured at fair value at the time that the related loans are sold and remeasured at fair value at each reporting date. Changes in fair value of MSRs are reflected in residential mortgage banking revenue in the period in which the changes occur. Fair value is determined based upon the application of valuation models and other inputs. The valuation models incorporate assumptions market participants would use in estimating future cash flows. The reasonableness of these valuation models is periodically validated by reference to external independent broker valuations and industry surveys.

The following table summarizes the critical assumptions used to calculate the fair value of MSRs at June 30, 2016:

	June 30, 2016
Annualized constant prepayment rate	18.0	%
Constant discount rate	10.3	%
Weighted average life (in years)	3.7

The following table summarizes MSRs activity during the three and six months ended June 30, 2016:

	Three Months Ended June 30, 2016			Six Months Ended June 30, 2016
	(in millions)
Fair value of MSRs:
Beginning balance	$	117		$	140
Changes in fair value due to changes in valuation model inputs or assumptions	(8		)	(24		)
Reductions related to customer payments	(5		)	(12		)
Ending balance	$	104		$	104

The outstanding principal balance of serviced for others mortgages, which are not included in the consolidated balance sheet, totaled $17,305 million at June 30, 2016. Servicing fees collected are included in residential mortgage banking revenue and totaled$12 million and $25 million during the three and six months ended June 30, 2016, respectively.