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Servicing of Financial Assets | 6 Months Ended
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Jun. 30, 2021
Transfers and Servicing of Financial Assets [Abstract] |
Servicing of Financial Assets | NOTE 4. 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:
| Three Months Ended June 30 |  | Six Months Ended June 30
| 2021 |  | 2020 |  | 2021 |  | 2020
| (In millions)
Carrying value, beginning of period | $ | 401 |  |  | $ | 254 |  |  | $ | 296 |  |  | $ | 345 |
Additions | 45 |  |  | 24 |  |  | 77 |  |  | 35 |
Increase (decrease) in fair value: |  |  |  |  |  |  |
Due to change in valuation inputs or assumptions | (38) |  |  | (11) |  |  | 52 |  |  | (94) |
Economic amortization associated with borrower repayments (1) | (16) |  |  | (18) |  |  | (33) |  |  | (37) |
Carrying value, end of period | $ | 392 |  |  | $ | 249 |  |  | $ | 392 |  |  | $ | 249 |
________ (1)"Economic amortization associated with borrower repayments" includes both total loan payoffs as well as partial paydowns. Regions' MSR decay methodology is a discounted net cash flow approach. In the six months ended 2021 and 2020, the Company purchased the rights to service residential mortgage loans on a flow basis for approximately $37 million and $16 million, respectively. 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) are as follows:
| June 30
| 2021 |  | 2020
| (Dollars in millions)
Unpaid principal balance | $ | 35,519 |  |  | $ | 33,575 |
Weighted-average CPR (%) | 10.5 | % |  | 17.0 | %
Estimated impact on fair value of a 10% increase | $ | (27) |  |  | $ | (25) |
Estimated impact on fair value of a 20% increase | $ | (49) |  |  | $ | (44) |
Option-adjusted spread (basis points) | 571 |  | 626 |
Estimated impact on fair value of a 10% increase | $ | (9) |  |  | $ | (5) |
Estimated impact on fair value of a 20% increase | $ | (19) |  |  | $ | (11) |
Weighted-average coupon interest rate | 3.7 | % |  | 4.1 | %
Weighted-average remaining maturity (months) | 292 |  | 280
Weighted-average servicing fee (basis points) | 27.3 |  |  | 27.4 |
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:
| Three Months Ended June 30 |  | Six Months Ended June 30
| 2021 |  | 2020 |  | 2021 |  | 2020
| (In millions) |  | (In millions)
Servicing related fees and other ancillary income | $ | 25 |  |  | $ | 23 |  |  | $ | 49 |  |  | $ | 48 |
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 "Summary of Significant Accounting Policies" in the 2020 Annual Report on Form 10-K for additional information. Also see Note 11 for additional information. The table below presents an analysis of commercial MSRs under the amortization measurement method:
| Three Months Ended June 30 |  | Six Months Ended June 30
| 2021 |  | 2020 |  | 2021 |  | 2020
| (In millions) |  | (In millions)
Carrying value, beginning of period | $ | 82 |  |  | $ | 59 |  |  | $ | 74 |  |  | $ | 59 |
Additions | 8 |  |  | 7 |  |  | 19 |  |  | 10 |
Economic amortization associated with borrower repayments (1) | (4) |  |  | (2) |  |  | (7) |  |  | (5) |
Carrying value, end of period | $ | 86 |  |  | $ | 64 |  |  | $ | 86 |  |  | $ | 64 |
________ (1)"Economic amortization associated with borrower repayments" includes both total loan payoffs as well as partial paydowns. Regions periodically evaluates the commercial MSRs for impairment based on fair value. The estimated fair value of the commercial MSRs was approximately $93 million at June 30, 2021 and $81 million December 31, 2020. The following table presents servicing related fees, which includes contractually specified servicing fees, late fees and other ancillary income resulting from the servicing of commercial mortgage loans:
| Three Months Ended June 30 |  | Six Months Ended June 30
| 2021 |  | 2020 |  | 2021 |  | 2020
| (In millions) |  | (In millions)
Servicing related fees and other ancillary income | $ | 5 |  |  | $ | 5 |  |  | $ | 10 |  |  | $ | 10 |

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- Definition The entire disclosure for a transferor's continuing involvement in financial assets that it has transferred in a securitization or asset-backed financing arrangement, the nature of any restrictions on assets reported by an entity in its statement of financial position that relate to a transferred financial asset (including the carrying amounts of such assets), how servicing assets and servicing liabilities are reported, and (for securitization or asset-backed financing arrangements accounted for as sales) when a transferor has continuing involvement with the transferred financial assets and transfers of financial assets accounted for as secured borrowings, how the transfer of financial assets affects an entity's financial position, financial performance, and cash flows. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 860 -SubTopic 30 -Section 50 -Paragraph 1A -Subparagraph (c)(3) -URI 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