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Goodwill and Mortgage Servicing Rights | 9 Months Ended
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Sep. 30, 2022
Goodwill and Intangible Assets Disclosure [Abstract] |
Goodwill and Mortgage Servicing Rights | GOODWILL AND M ORTGAGE S ERVICING R IGHTS Goodwill See Note 6 Goodwill and Mortgage Servicing Rights in the Notes To Consolidated Financial Statements included in Item 8 of our 2021 Form 10-K for more information regarding our goodwill. Mortgage Servicing Rights We recognize the right to service mortgage loans for others as an intangible asset when the servicing income we receive is more than our projected servicing costs. MSRs are recognized either when purchased or when originated loans are sold with servicing retained. MSRs totaled $3.2 billion at September 30, 2022 and $1.8 billion at December 31, 2021, and consisted of loan servicing contracts for commercial and residential mortgages measured at fair value. MSRs are subject to changes in value from actual or expected prepayment of the underlying loans and defaults, as well as market driven changes in interest rates. We manage this risk by economically hedging the fair value of MSRs with securities, derivative instruments and resale agreements which are expected to increase (or decrease) in value when the value of MSRs decreases (or increases). See the Sensitivity Analysis section of this Note 6 for more detail on our fair value measurement of MSRs. See Note 6 Goodwill and Mortgage Servicing Rights and Note 15 Fair Value in the Notes To Consolidated Financial Statements included in Item 8 of our 2021 Form 10-K for more detail on our fair value measurement and our accounting of MSRs. Changes in the commercial and residential MSRs follow: Table 51: Mortgage Servicing Rights
| Commercial MSRs |  | Residential MSRs |
In millions | 2022 | 2021 |  | 2022 | 2021 |
January 1 | $ | 740 |  | $ | 569 |  |  | $ | 1,078 |  | $ | 673 |  |
Additions: |  |  |  |  |  |
BBVA Acquisition |  |  |  |  | 35 |  |
From loans sold with servicing retained | 52 |  | 61 |  |  | 49 |  | 61 |  |
Purchases | 32 |  | 26 |  |  | 620 |  | 400 |  |
Changes in fair value due to: |  |  |  |  |  |
Time and payoffs (a) | (130) |  | (87) |  |  | (178) |  | (242) |  |
Other (b) | 438 |  | 134 |  |  | 505 |  | 203 |  |
September 30 | $ | 1,132 |  | $ | 703 |  |  | $ | 2,074 |  | $ | 1,130 |  |
Related unpaid principal balance at September 30 | $ | 281,931 |  | $ | 263,862 |  |  | $ | 169,678 |  | $ | 139,154 |  |
Servicing advances at September 30 | $ | 448 |  | $ | 445 |  |  | $ | 132 |  | $ | 139 |  |
(a)Represents decrease in MSR value due to passage of time, including the impact from both regularly scheduled loan principal payments and loans that were paid down or paid off during the period. (b)Represents MSR value changes resulting primarily from market-driven changes in interest rates. Sensitivity Analysis The fair value of commercial and residential MSRs and significant inputs to the valuation models as of September 30, 2022 and December 31, 2021 are shown in Tables 52 and 53. The expected and actual rates of mortgage loan prepayments are significant factors driving the fair value. Management uses both internal proprietary models and a third-party model to estimate future commercial mortgage loan prepayments and a third-party model to estimate future residential mortgage loan prepayments. These models have been refined based on current market conditions and management judgment. Future interest rates are another important factor in the valuation of MSRs. Management utilizes market implied forward interest rates to estimate the future direction of mortgage and discount rates. The forward rates utilized are derived from the current yield curve for U.S. dollar interest rate swaps and are consistent with pricing of capital markets instruments. Changes in the shape and slope of the forward curve in future periods may result in volatility in the fair value estimate. A sensitivity analysis of the hypothetical effect on the fair value of MSRs to adverse changes in key assumptions is presented in Tables 52 and 53. These sensitivities do not include the impact of the related hedging activities. Changes in fair value generally cannot be extrapolated because the relationship of the change in the 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 the MSRs is calculated independently without changing any other assumption. In reality, changes in one factor may result in changes in another (e.g., changes in mortgage interest rates, which drive changes in prepayment rate estimates, could result in changes in the interest rate spread), which could either magnify or counteract the sensitivities. The following tables set forth the fair value of commercial and residential MSRs and the sensitivity analysis of the hypothetical effect on the fair value of MSRs to immediate adverse changes of 10% and 20% in those assumptions. Table 52: Commercial Mortgage Servicing Rights – Key Valuation Assumptions
Dollars in millions | September 30 2022 |  | December 31 2021 |
Fair value | $ | 1,132 |  |  | $ | 740 |  |
Weighted-average life (years) | 4.1 |  | 4.2 |
Weighted-average constant prepayment rate | 4.25 | % |  | 5.49 | % |
Decline in fair value from 10% adverse change | $ | 8 |  |  | $ | 12 |  |
Decline in fair value from 20% adverse change | $ | 16 |  |  | $ | 21 |  |
Effective discount rate | 9.73 | % |  | 7.75 | % |
Decline in fair value from 10% adverse change | $ | 35 |  |  | $ | 20 |  |
Decline in fair value from 20% adverse change | $ | 69 |  |  | $ | 40 |  |
Table 53: Residential Mortgage Servicing Rights – Key Valuation Assumptions
Dollars in millions | September 30 2022 |  | December 31 2021 |
Fair value | $ | 2,074 |  |  | $ | 1,078 |  |
Weighted-average life (years) | 7.9 |  | 5.7 |
Weighted-average constant prepayment rate | 6.76 | % |  | 12.63 | % |
Decline in fair value from 10% adverse change | $ | 49 |  |  | $ | 46 |  |
Decline in fair value from 20% adverse change | $ | 95 |  |  | $ | 89 |  |
Weighted-average option adjusted spread | 759 |  | bps | 857 |  | bps
Decline in fair value from 10% adverse change | $ | 60 |  |  | $ | 31 |  |
Decline in fair value from 20% adverse change | $ | 117 |  |  | $ | 60 |  |
Fees from mortgage loan servicing, which include contractually specified servicing fees, late fees and ancillary fees were $0.1 billion and $0.2 billion for the three months ended September 30, 2022 and 2021, respectively, and $0.4 billion for both the nine months ended September 30, 2022 and 2021. We also generate servicing fees from fee-based activities provided to others for which we do not have an associated servicing asset. Fees from commercial and residential MSRs are reported within Noninterest income on our Consolidated Income Statement in Residential and commercial mortgage.

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