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2.0.0.10 false Mortgage Servicing Rights 123 - Disclosure - Mortgage Servicing Rights true false false false 1 usd $ false false iso4217_USD Standard http://www.xbrl.org/2003/iso4217 USD iso4217 0 iso4217_USD_per_shares Divide http://www.xbrl.org/2003/iso4217 USD iso4217 http://www.xbrl.org/2003/instance shares 0 shares Standard http://www.xbrl.org/2003/instance shares 0 5 Mortgage Servicing Rights 3 us-gaap_ScheduleOfServicingAssetsAtFairValueTextBlock us-gaap true na duration string No definition available. false false false false false false false false false false false false 1 false false false false 0 0 <div> <table border="0" cellspacing="0" cellpadding="0" width="100%" bgcolor="#E5E5E5" align="center"> <tr> <td valign="top"> NOTE 16 – Mortgage Servicing Rights </td> </tr> </table> The Corporation accounts for consumer MSRs at fair value with changes in fair value recorded in the Consolidated Statement of Income in mortgage banking income. The Corporation economically hedges these MSRs with certain derivatives and securities including MBS and U.S. Treasuries. The securities that economically hedge the MSRs are recorded in other assets with changes in the fair value of the securities and the related interest income recorded in mortgage banking income. The following table presents activity for residential first mortgage MSRs for the three months ended March 31, 2010 and 2009.   <table border="0" cellspacing="0" cellpadding="0" width="100%" align="center"> <tr> <td width="86%"></td> <td valign="bottom" width="3%"></td> <td></td> <td></td> <td></td> <td valign="bottom" width="3%"></td> <td></td> <td></td> <td></td> </tr> <tr> <td valign="bottom"> </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom">   </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" colspan="6" align="center">Three Months Ended March 31</td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom">  </td> </tr> <tr> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom">   (Dollars in millions)</td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom">   </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" colspan="2" align="center">2010</td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom">  </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom">  </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" colspan="2" align="center">2009</td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom">  </td> </tr> <tr bgcolor="#CCEEFF"> <td valign="top">   Balance, January 1 </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">19,465</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">12,733</td> <td valign="bottom" nowrap="nowrap">  </td> </tr> <tr> <td valign="top"> Merrill Lynch balance, January 1, 2009 </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">-</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">209</td> <td valign="bottom" nowrap="nowrap">  </td> </tr> <tr bgcolor="#CCEEFF"> <td valign="top"> Net additions </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,131</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,249</td> <td valign="bottom" nowrap="nowrap">  </td> </tr> <tr> <td valign="top"> Impact of customer payments </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(603</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(1,185</td> <td valign="bottom" nowrap="nowrap">) </td> </tr> <tr bgcolor="#CCEEFF"> <td style="BORDER-BOTTOM: #000000 1px solid" valign="top"> Other changes in MSR fair value </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom">   </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom">  </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align="right">(1,151</td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" nowrap="nowrap">) </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom">  </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom">  </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align="right">1,090</td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" nowrap="nowrap">  </td> </tr> <tr> <td style="BORDER-BOTTOM: #000000 1px solid" valign="top"> Balance, March 31 </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom">   </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom"> $</td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align="right">18,842</td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" nowrap="nowrap">  </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom">  </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom"> $</td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align="right">14,096</td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" nowrap="nowrap">  </td> </tr> <tr bgcolor="#CCEEFF"> <td style="BORDER-BOTTOM: #000000 2px solid" valign="top">   Mortgage loans serviced for investors (in billions) </td> <td style="BORDER-BOTTOM: #000000 2px solid" valign="bottom">   </td> <td style="BORDER-BOTTOM: #000000 2px solid" valign="bottom"> $</td> <td style="BORDER-BOTTOM: #000000 2px solid" valign="bottom" align="right">1,717</td> <td style="BORDER-BOTTOM: #000000 2px solid" valign="bottom" nowrap="nowrap">  </td> <td style="BORDER-BOTTOM: #000000 2px solid" valign="bottom">  </td> <td style="BORDER-BOTTOM: #000000 2px solid" valign="bottom"> $</td> <td style="BORDER-BOTTOM: #000000 2px solid" valign="bottom" align="right">1,699</td> <td style="BORDER-BOTTOM: #000000 2px solid" valign="bottom" nowrap="nowrap">  </td> </tr> </table>   Other changes in MSR fair value in the previous table reflect the change in discount rates and prepayment speed assumptions, largely due to changes in interest rates, as well as the effect of changes in other assumptions, but do not include $453 million and $8 million in gains for the three months ended March 31, 2010 and 2009 resulting from lower than expected prepayments. Such gains are included in the impact of customer payments in the table above. The total of these gains and the other changes in MSR fair value of $(698) million and $1.1 billion is included in the line mortgage banking income in the table Level 3 – Total Realized and Unrealized Gains (Losses) Included in Earnings in Note 14 – Fair Value Measurements. The Corporation uses an OAS valuation approach to determine the fair value of MSRs which factors in prepayment risk. This approach consists of projecting servicing cash flows under multiple interest rate scenarios and discounting these cash flows using risk-adjusted discount rates. The key economic assumptions used in determining the fair value of MSRs at March 31, 2010 and December 31, 2009 were as follows.   <table border="0" cellspacing="0" cellpadding="0" width="100%" align="center"> <tr> <td width="72%"></td> <td valign="bottom" width="3%"></td> <td></td> <td valign="bottom" width="3%"></td> <td></td> <td valign="bottom" width="3%"></td> <td></td> <td valign="bottom" width="3%"></td> <td></td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" colspan="3" align="center">March 31, 2010</td> <td valign="bottom">  </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" colspan="3" align="center">December 31, 2009</td> </tr> <tr> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom">   (Dollars in millions)</td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom">   </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align="center">Fixed    </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom">   </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align="center">Adjustable    </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom">   </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align="center">Fixed    </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom">   </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align="center">Adjustable    </td> </tr> <tr bgcolor="#CCEEFF"> <td valign="top">   Weighted-average option adjusted spread </td> <td valign="bottom">  </td> <td valign="bottom" align="right">1.63%</td> <td valign="bottom">  </td> <td valign="bottom" align="right">4.76%</td> <td valign="bottom">  </td> <td valign="bottom" align="right">1.67%</td> <td valign="bottom">  </td> <td valign="bottom" align="right">4.64%</td> </tr> <tr> <td style="BORDER-BOTTOM: #000000 2px solid" valign="top">   Weighted-average life, in years </td> <td style="BORDER-BOTTOM: #000000 2px solid" valign="bottom">   </td> <td style="BORDER-BOTTOM: #000000 2px solid" valign="bottom" align="right">5.55    </td> <td style="BORDER-BOTTOM: #000000 2px solid" valign="bottom">   </td> <td style="BORDER-BOTTOM: #000000 2px solid" valign="bottom" align="right">3.08    </td> <td style="BORDER-BOTTOM: #000000 2px solid" valign="bottom">   </td> <td style="BORDER-BOTTOM: #000000 2px solid" valign="bottom" align="right">5.62    </td> <td style="BORDER-BOTTOM: #000000 2px solid" valign="bottom">   </td> <td style="BORDER-BOTTOM: #000000 2px solid" valign="bottom" align="right">3.26    </td> </tr> </table> The table below presents the sensitivity of the weighted-average lives and fair value of MSRs to changes in modeled assumptions. These sensitivities are hypothetical and should be used with caution. As the amounts indicate, changes in fair value based on variations 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 a variation in a particular assumption on the fair value of a MSR that continues to be held by the Corporation is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another, which might magnify or counteract the sensitivities. The below sensitivities do not reflect any hedge strategies that may be undertaken to mitigate such risk.   <table border="0" cellspacing="0" cellpadding="0" width="100%" align="center"> <tr> <td width="71%"></td> <td valign="bottom" width="3%"></td> <td></td> <td valign="bottom" width="3%"></td> <td></td> <td valign="bottom" width="3%"></td> <td></td> <td></td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" colspan="6" align="center">March 31, 2010</td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" colspan="3" align="center">Change in Weighted-average Lives</td> <td valign="bottom">  </td> <td valign="bottom" colspan="2"> </td> </tr> <tr> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" nowrap="nowrap">  (Dollars in millions)</td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom">   </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align="center">Fixed            </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom">   </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align="center">Adjustable      </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom">   </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" colspan="2" align="center"> Change in     Fair Value     </td> </tr> <tr bgcolor="#CCEEFF"> <td valign="top"> Prepayment rates </td> <td valign="bottom">  </td> <td valign="bottom"></td> <td valign="bottom">  </td> <td valign="bottom"></td> <td valign="bottom">  </td> <td valign="bottom"></td> <td valign="bottom"></td> </tr> <tr> <td valign="top"> Impact of 10% decrease </td> <td valign="bottom">  </td> <td valign="bottom" align="right">0.33 years</td> <td valign="bottom">  </td> <td valign="bottom" align="right">0.14 years</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">933    </td> </tr> <tr bgcolor="#CCEEFF"> <td valign="top"> Impact of 20% decrease </td> <td valign="bottom">  </td> <td valign="bottom" align="right">0.71          </td> <td valign="bottom">  </td> <td valign="bottom" align="right">0.32          </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,974    </td> </tr> <tr> <td height="8"></td> <td height="8" colspan="2"></td> <td height="8" colspan="2"></td> <td height="8" colspan="3"></td> </tr> <tr> <td valign="top"> Impact of 10% increase </td> <td valign="bottom">  </td> <td valign="bottom" align="right">(0.30)          </td> <td valign="bottom">  </td> <td valign="bottom" align="right">(0.12)          </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(842)    </td> </tr> <tr bgcolor="#CCEEFF"> <td style="BORDER-BOTTOM: #000000 1px solid" valign="top"> Impact of 20% increase </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom">   </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align="right">(0.57)          </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom">   </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align="right">(0.23)          </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom">   </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom">  </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align="right">(1,606)    </td> </tr> <tr> <td valign="top">   OAS level </td> <td valign="bottom">  </td> <td valign="bottom"></td> <td valign="bottom">  </td> <td valign="bottom"></td> <td valign="bottom">  </td> <td valign="bottom"></td> <td valign="bottom"></td> </tr> <tr bgcolor="#CCEEFF"> <td valign="top"> Impact of 100 bps decrease </td> <td valign="bottom">  </td> <td valign="bottom" align="right">n/a          </td> <td valign="bottom">  </td> <td valign="bottom" align="right">n/a          </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">880    </td> </tr> <tr> <td valign="top"> Impact of 200 bps decrease </td> <td valign="bottom">  </td> <td valign="bottom" align="right">n/a          </td> <td valign="bottom">  </td> <td valign="bottom" align="right">n/a          </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,841    </td> </tr> <tr> <td height="8"></td> <td height="8" colspan="2"></td> <td height="8" colspan="2"></td> <td height="8" colspan="3"></td> </tr> <tr bgcolor="#CCEEFF"> <td valign="top"> Impact of 100 bps increase </td> <td valign="bottom">  </td> <td valign="bottom" align="right">n/a          </td> <td valign="bottom">  </td> <td valign="bottom" align="right">n/a          </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(809)    </td> </tr> <tr> <td style="BORDER-BOTTOM: #000000 2px solid" valign="top"> Impact of 200 bps increase </td> <td style="BORDER-BOTTOM: #000000 2px solid" valign="bottom">   </td> <td style="BORDER-BOTTOM: #000000 2px solid" valign="bottom" align="right">n/a          </td> <td style="BORDER-BOTTOM: #000000 2px solid" valign="bottom">   </td> <td style="BORDER-BOTTOM: #000000 2px solid" valign="bottom" align="right">n/a          </td> <td style="BORDER-BOTTOM: #000000 2px solid" valign="bottom">   </td> <td style="BORDER-BOTTOM: #000000 2px solid" valign="bottom">  </td> <td style="BORDER-BOTTOM: #000000 2px solid" valign="bottom" align="right">(1,554)    </td> </tr> <tr> <td valign="top">     n/a = not applicable </td> <td valign="bottom">  </td> <td valign="bottom"></td> <td valign="bottom">  </td> <td valign="bottom"></td> <td valign="bottom">  </td> <td valign="bottom"></td> <td valign="bottom"></td> </tr> </table> Commercial and residential reverse mortgage MSRs are accounted for using the amortization method (i.e., lower of cost or market) and totaled $304 million and $309 million at March 31, 2010 and December 31, 2009. They are not included in the tables above. </div> NOTE 16 – Mortgage Servicing Rights The Corporation accounts for consumer MSRs at fair value with changes in fair value recorded in the Consolidated false false false This schedule lists the activity in the balance of servicing assets (including a description of where changes in fair value are reported in the statement of income for each period for which results of operations are presented), including but not limited to, the following: beginning and ending balances, additions (through purchases of servicing assets, assumptions of servicing obligations, and servicing obligations that result from transfers of financial assets), disposals, changes in fair value during the period resulting from changes in inputs or assumptions used in the valuation model, other changes in fair value along with a description of those changes, and other changes that affect the balance along with a description of those changes. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name FASB Staff Position (FSP) -Number FAS140-4 and FIN46(R)-8 -Paragraph B9 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 140 -Paragraph 17 -Subparagraph f false false 1 1 false UnKnown UnKnown UnKnown false true