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Mortgage Servicing Assets | 6 Months Ended
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Jun. 30, 2026
Servicing Asset [Abstract] |
Mortgage Servicing Assets | 8. Mortgage Servicing Assets We originate and periodically sell commercial and residential mortgage loans but continue to service those loans for the buyers. We also may purchase the right to service commercial mortgage loans from other lenders. We record a servicing asset if we purchase or retain the right to service loans in exchange for servicing fees that exceed the going market servicing rate and are considered more than adequate compensation for servicing. Additional information pertaining to the accounting for mortgage and other servicing assets is included in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Servicing Assets” beginning on page 114 of our 2025 Form 10-K. Commercial Changes in the carrying amount of commercial mortgage servicing assets are summarized as follows:
| Three months ended June 30, |  | Six months ended June 30,
Dollars in millions | 2026 | 2025 |  | 2026 | 2025
Balance at beginning of period | $ | 572 |  | $ | 597 |  |  | $ | 577 |  | $ | 609 |
Servicing retained from loan sales | 12 |  | 17 |  |  | 34 |  | 32 |
Purchases | — |  | 4 |  |  | 4 |  | 8 |
Amortization | (32) |  | (31) |  |  | (63) |  | (62) |
Balance at end of period | $ | 552 |  | $ | 587 |  |  | $ | 552 |  | $ | 587 |
Fair value at end of period | $ | 777 |  | $ | 787 |  |  | $ | 777 |  | $ | 787 |
The fair value of commercial mortgage servicing assets is determined by calculating the present value of future cash flows associated with servicing the loans. This calculation uses a number of assumptions that are based on current market conditions. The sensitivity, range, and weighted average of the significant unobservable inputs used to determine the fair value of our commercial mortgage servicing assets at June 30, 2026, and December 31, 2025, along with the valuation techniques, are shown in the following table:
|  | June 30, 2026 |  | December 31, 2025
| Significant Unobservable Input | Range | Weighted Average |  | Range | Weighted Average
| Escrow earn rate | 4.42 | % | 4.59 | % | 4.58 | % |  | 3.94 | % | 4.09 | % | 4.08 | %
| Effect on fair value from 10% adverse change |  |  | $ | (32) |  |  |  |  | $ | (29) |
| Effect on fair value from 20% adverse change |  |  | (65) |  |  |  |  | (57) |
| Residual cash flows discount rate | 7.01 | % | 10.74 | % | 10.46 | % |  | 6.96 | % | 10.84 | % | 10.58 | %
| Effect on fair value from 10% adverse change |  |  | $ | (19) |  |  |  |  | $ | (19) |
| Effect on fair value from 20% adverse change |  |  | (37) |  |  |  |  | (36) |
| Expected defaults | 1.00 | % | 1.50 | % | 1.04 | % |  | 1.00 | % | 2.00 | % | 1.01 | %
| Effect on fair value from 10% adverse change |  |  | $ | (2) |  |  |  |  | $ | (2) |
| Effect on fair value from 20% adverse change |  |  | (4) |  |  |  |  | (3) |
| Loan assumption rate | 8.00 | % | 45.00 | % | 9.78 | % |  | 8.00 | % | 45.00 | % | 10.05 | %
| Effect on fair value from 10% adverse change |  |  | $ | (7) |  |  |  |  | $ | (6) |
| Effect on fair value from 20% adverse change |  |  | (14) |  |  |  |  | (13) |
If these economic assumptions change or prove incorrect, the fair value of commercial mortgage servicing assets may also change. Expected credit losses, escrow earn rates, and discount rates are critical to the valuation of commercial mortgage servicing assets. Estimates of these assumptions are based on how a market participant would view the respective rates and reflect historical data associated with the commercial mortgage loans, industry trends, and other considerations. Actual rates may differ from those estimated due to changes in a variety of economic factors. A decrease in the value assigned to the escrow earn rates would cause a decrease in the fair value of our commercial mortgage servicing assets. An increase in the assumed default rates of commercial mortgage loans or an increase in the assigned discount rates would cause a decrease in the fair value of our commercial mortgage servicing assets. Prepayment activity on commercial serviced loans does not significantly impact the valuation of our commercial mortgage servicing assets. Unlike residential mortgages, commercial mortgages experience significantly lower prepayments due to certain contractual restrictions affecting the borrower’s ability to prepay the mortgage. 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 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. Assumptions and information for originated commercial mortgage servicing right additions for the six-month period ended June 30, 2026 are shown in the following table:
Dollars in millions | June 30, 2026 |
Unpaid principal balance of loans sold during the period | $ | 3,118 |  |
Pretax gains related to the sale of mortgage loans | 53 |  |
Weighted average servicing fee rate | 0.16 | % |
Weighted average assumptions: |  |
Escrow earn rate assumption | 4.28 | % |
Discount rate assumption | 9.77 | % |
Default rate assumption | 1.03 | % |
Prepayment rate assumption | 11.94 | % |
The amortization of commercial servicing assets is determined in proportion to, and over the period of, the estimated net servicing income. The amortization of commercial servicing assets for each period, as shown in the table at the beginning of this note, is recorded as a reduction to contractual fee income. The contractual fee income from servicing commercial mortgage loans totaled $174 million for the six-month period ended June 30, 2026, and $209 million for the six-month period ended June 30, 2025. This fee income was offset by $63 million of amortization for the six-month period ended June 30, 2026, and $62 million for the six-month period ended June 30, 2025. Both the contractual fee income and the amortization are recorded, net, in “commercial mortgage servicing fees” on the income statement. Residential Changes in the carrying amount of residential mortgage servicing assets are summarized as follows:
| Three months ended June 30, |  | Six months ended June 30,
Dollars in millions | 2026 | 2025 |  | 2026 | 2025
Balance at beginning of period | $ | 114 |  | $ | 111 |  |  | $ | 112 |  | $ | 111 |
Servicing retained from loan sales | 4 |  | 4 |  |  | 9 |  | 7 |
Amortization | (4) |  | (3) |  |  | (7) |  | (6) |
Balance at end of period | $ | 114 |  | $ | 112 |  |  | $ | 114 |  | $ | 112 |
Fair value at end of period | $ | 140 |  | $ | 136 |  |  | $ | 140 |  | $ | 136 |
The fair value of mortgage servicing assets is determined by calculating the present value of future cash flows associated with servicing the loans. This calculation uses a number of assumptions that are based on current market conditions. The sensitivity, range, and weighted-average of the significant unobservable inputs used to fair value our mortgage servicing assets at June 30, 2026, and December 31, 2025, along with the valuation techniques, are shown in the following table:
|  | June 30, 2026 |  | December 31, 2025
| Significant Unobservable Input | Range | Weighted Average |  | Range | Weighted Average
| Prepayment speed | 5.57 | % | 32.55 | % | 8.06 | % |  | 6.01 | % | 33.07 | % | 8.33 | %
| Effect on Fair Value of a 10% adverse change |  |  | $ | (4) |  |  |  |  | $ | (4) |
| Effect on Fair Value of a 20% adverse change |  |  | (8) |  |  |  |  | (8) |
| Discount rate | 6.50 | % | 8.75 | % | 6.62 | % |  | 6.50 | % | 8.75 | % | 6.62 | %
| Effect on Fair Value of a 10% adverse change |  |  | $ | (4) |  |  |  |  | $ | (4) |
| Effect on Fair Value of a 20% adverse change |  |  | (7) |  |  |  |  | (7) |
| Servicing cost | $ | 70.00 |  | $ | 4,332 |  | $ | 75.96 |  |  | $ | 70.00 |  | $ | 4,332 |  | $ | 76.47 |
If these economic assumptions change or prove incorrect, the fair value of residential mortgage servicing assets may also change. Prepayment speed, discount rates, and servicing cost are critical to the valuation of residential mortgage servicing assets. Estimates of these assumptions are based on how a market participant would view the respective rates and reflect historical data associated with the residential mortgage loans, industry trends, and other considerations. Actual rates may differ from those estimated due to changes in a variety of economic factors. An increase in the prepayment speed would cause a decrease in the fair value of our residential mortgage servicing assets. An increase in the assigned discount rates and servicing cost assumptions would cause a decrease in the fair value of our residential mortgage servicing assets. 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 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 amortization of residential servicing assets for June 30, 2026, as shown in the table above, is recorded as a reduction to contractual fee income. The contractual fee income from servicing residential mortgage loans totaled $17 million for the six-month period ended June 30, 2026, and $20 million for the six-month period ended June 30, 2025. This fee income was offset by $7 million of amortization for the six-month period ended June 30, 2026, and $6 million for the six-month period ended June 30, 2025. Both the contractual fee income and the amortization are recorded, net, in “consumer mortgage income” on the income statement.

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