v3.20.4
Servicing of Financial Assets
 12 Months Ended
Dec. 31, 2020
Transfers and Servicing of Financial Assets [Abstract]  
Servicing of Financial Assets
NOTE 7. SERVICING OF FINANCIAL ASSETS
RESIDENTIAL MORTGAGE BANKING ACTIVITIES
The fair value of residential MSRs is calculated using various assumptions including future cash flows, market discount rates, expected prepayment rates, servicing costs and other factors. A significant change in prepayments of mortgages in the servicing portfolio could result in significant changes in the valuation adjustments, thus creating potential volatility in the carrying amount of residential MSRs. The Company compares fair value estimates and assumptions to observable market data where available, and also considers recent market activity and actual portfolio experience.
The table below presents an analysis of residential MSRs under the fair value measurement method for the years ended December 31: 
 202020192018
 (In millions)
Carrying value, beginning of year$345 $418 $336 
Additions108 42 111 
Increase (decrease) in fair value:
Due to change in valuation inputs or assumptions(89)(62)18 
Economic amortization associated with borrower repayments (1)
(68)(53)(47)
Carrying value, end of year$296 $345 $418 
_________
(1)"Economic amortization associated with borrower repayments" includes both total loan payoffs as well as partial paydowns. In the first quarter of 2020, Regions revised its MSR decay methodology from a passage of time approach to a discounted net cash flow approach. The change in methodology results in shifts between decay and hedge impacts, but does not impact the overall valuation.
In 2020, the Company purchased the rights to service residential mortgage loans on a flow basis for approximately $59 million.
In 2019, the Company purchased the rights to service approximately $409 million in residential mortgage loans for approximately $4 million. Additionally, Regions purchased the rights to service residential mortgage loans on a flow basis for approximately $13 million. The Company also sold $167 million of affordable housing residential mortgage loans and as part of the transaction kept the rights to service the loans, which resulted in the retained residential MSR of approximately $2 million.
In 2018, the Company purchased the rights to service approximately $6.1 billion in residential mortgage loans for approximately $77 million. Approximately $7 million of the purchase price was paid in 2019.
Data and assumptions used in the fair value calculation, as well as the valuation’s sensitivity to rate fluctuations, related to residential MSRs (excluding related derivative instruments) as of December 31 are as follows: 
 20202019
 (Dollars in millions)
Unpaid principal balance$34,454 $34,467 
Weighted-average CPR (%)15.6 %12.0 %
Estimated impact on fair value of a 10% increase$(23)$(19)
Estimated impact on fair value of a 20% increase$(42)$(35)
Option-adjusted spread (basis points)560 618 
Estimated impact on fair value of a 10% increase$(7)$(8)
Estimated impact on fair value of a 20% increase$(13)$(16)
Weighted-average coupon interest rate3.9 %4.2 %
Weighted-average remaining maturity (months)287278
Weighted-average servicing fee (basis points)27.5 27.3 
The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. Changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, the effect of an adverse variation in a particular assumption on the fair value of the residential MSRs is calculated without changing any other assumption, while in reality changes in one factor may result in changes in another, which may either magnify or counteract the effect of the change. The derivative instruments utilized by Regions would serve to reduce the estimated impacts to fair value included in the table above.
The following table presents servicing related fees, which includes contractually specified servicing fees, late fees and other ancillary income resulting from the servicing of residential mortgage loans for the years ended December 31:
 202020192018
 (In millions)
Servicing related fees and other ancillary income$95 $102 $95 
Residential mortgage loans are sold in the secondary market with standard representations and warranties regarding certain characteristics such as the quality of the loan, the absence of fraud, the eligibility of the loan for sale and the future servicing associated with the loan. Regions may be required to repurchase these loans at par, or make-whole or indemnify the purchasers for losses incurred when representations and warranties are breached.
Regions maintains an immaterial repurchase liability related to residential mortgage loans sold with representations and warranty provisions. This repurchase liability is reported in other liabilities on the consolidated balance sheets and reflects management’s estimate of losses based on historical repurchase and loss trends, as well as other factors that may result in anticipated losses different from historical loss trends. Adjustments to this reserve are recorded in other non-interest expense on the consolidated statements of income.
COMMERCIAL MORTGAGE BANKING ACTIVITIES
Regions is an approved DUS lender. The DUS program provides liquidity to the multi-family housing market. In connection with the DUS program, Regions services commercial mortgage loans, retains commercial MSRs and intangible assets associated with the DUS license, and assumes a loss share guarantee associated with the loans. See Note 1 for additional information. Also see Note 24 for additional information related to the guarantee.
As of December 31, 2020 and 2019, the DUS servicing portfolio was approximately $4.5 billion and $3.9 billion, respectively. The related commercial MSRs were approximately $74 million and $59 million at December 31, 2020 and 2019, respectively. The estimated fair value of the commercial MSRs was approximately $81 million and $64 million at December 31, 2020 and December 31, 2019, respectively.