Annual report pursuant to Section 13 and 15(d)

LOAN SALES AND SECURITIZATIONS

v3.8.0.1
LOAN SALES AND SECURITIZATIONS
 12 Months Ended
Dec. 31, 2017
Transfers and Servicing [Abstract]  
LOAN SALES AND SECURITIZATIONS
LOAN SALES AND SECURITIZATIONS
Residential Mortgage Portfolio
The following table summarizes activity relating to residential mortgage loans sold with servicing retained for the years ended December 31, 2017, 2016, and 2015:
  
Year Ended December 31,
(dollar amounts in millions)
2017
 
2016
 
2015
Residential mortgage loans sold with servicing retained
$
3,985

 
$
3,632

 
$
3,323

Pretax gains resulting from above loan sales (1)
99

 
97

 
83

(1)
Recorded in mortgage banking income.
The following table summarizes the changes in MSRs recorded using the amortization method for the years ended December 31, 2017 and 2016:
 
 
 
 

(dollar amounts in millions)
2017
 
2016
Carrying value, beginning of year
$
172

 
$
143

New servicing assets created
44

 
38

Servicing assets acquired
—

 
15

Impairment recovery (charge)
1

 
2

Amortization and other
(26
)
 
(26
)
Carrying value, end of year
$
191

 
$
172

Fair value, end of year
$
191

 
$
173

Weighted-average life (years)
7.1

 
7.2


MSRs do not trade in an active, open market with readily observable prices. While sales of MSRs occur, the precise terms and conditions are typically not readily available. Therefore, the fair value of MSRs is estimated using a discounted future cash flow model. The model considers portfolio characteristics, contractually specified servicing fees and assumptions related to prepayments, delinquency rates, late charges, other ancillary revenues, costs to service, and other economic factors. Changes in the assumptions used may have a significant impact on the valuation of MSRs.
MSR values are very sensitive to movements in interest rates as expected future net servicing income depends on the projected outstanding principal balances of the underlying loans, which can be greatly impacted by the level of prepayments. Huntington economically hedges the value of certain MSRs against changes in value attributable to changes in interest rates using a combination of derivative instruments and trading securities.
 
 
 
 
 
 
 
 
 
 
 
 
For MSRs under the amortization method, a summary of key assumptions and the sensitivity of the MSR value to changes in these assumptions at December 31, 2017, and 2016 follows:
 
December 31, 2017
 
December 31, 2016
 
 
 
Decline in fair value due to
 
 
 
Decline in fair value due to
(dollar amounts in millions)
Actual
 
10%
adverse
change
 
20%
adverse
change
 
Actual
 
10%
adverse
change
 
20%
adverse
change
Constant prepayment rate (annualized)
8.30
%
 
$
(5
)
 
$
(10
)
 
7.80
%
 
$
(5
)
 
$
(9
)
Spread over forward interest rate swap rates
1,049
 bps
 
(7
)
 
(13
)
 
1,173
 bps
 
(5
)
 
(10
)

Additionally, Huntington has MSRs recorded using the fair value method of $11 million and $14 million at December 31, 2017 and 2016, respectively. The change in fair value representing time decay, payoffs and changes in valuation inputs and assumptions for the years ended December 31, 2017 and 2016 was $3 million and $4 million, respectively.
Total servicing, late and other ancillary fees included in mortgage banking income was $56 million, $50 million, and $47 million for the years ended December 31, 2017, 2016, and 2015, respectively. The unpaid principal balance of residential mortgage loans serviced for third parties was $19.8 billion, $18.9 billion, and $16.2 billion at December 31, 2017, 2016, and 2015, respectively.
Automobile Loans
The following table summarizes activity relating to automobile loans securitized with servicing retained for the years ended December 31, 2017, 2016, and 2015:
 
Year Ended December 31,
(dollar amounts in millions)
2017 (1)
 
2016
 
2015
UPB of automobile loans securitized with servicing retained
$
—

 
1,500

 
750

Net proceeds received in loan securitizations
—

 
1,552

 
780

Servicing asset recognized in loan securitizations (2)
—

 
15

 
11

Pretax gains resulting from above loan securitizations (3)
—

 
6

 
5

(1)
Huntington did not sell or securitize any automobile loans in 2017.
(2)
Recorded in servicing rights.
(3)
Recorded in gain on sale of loans.
Huntington has retained servicing responsibilities on sold automobile loans and receives annual servicing fees and other ancillary fees on the outstanding loan balances. Automobile loan servicing rights are accounted for using the amortization method. A servicing asset is established at fair value at the time of the sale. The servicing asset is then amortized against servicing income. Impairment, if any, is recognized when carrying value exceeds the fair value as determined by calculating the present value of expected net future cash flows. The primary risk characteristic for measuring servicing assets is payoff rates of the underlying loan pools. Valuation calculations rely on the predicted payoff assumption and, if actual payoffs are faster than expected, then future value would be impaired.
Changes in the carrying value of automobile loan servicing rights for the years ended December 31, 2017, and 2016, and the fair value at the end of each period were as follows:
(dollar amounts in millions)
2017
 
2016
Carrying value, beginning of year
$
18

 
$
9

New servicing assets created
—

 
15

Amortization and other
(10
)
 
(6
)
Carrying value, end of year
$
8

 
$
18

Fair value, end of year
$
9

 
$
18

Weighted-average life (years)
3.5

 
4.2


 
 
 
 
 
 
 
 
 
 
 
 

Servicing income was $18 million, $9 million, and $5 million for the years ended December 31, 2017, 2016, and 2015, respectively. The unpaid principal balance of automobile loans serviced for third parties was $1.0 billion, $1.7 billion, and $0.9 billion at December 31, 2017, 2016, and 2015, respectively.
Small Business Association (SBA) Portfolio
The following table summarizes activity relating to SBA loans sold with servicing retained for the years ended December 31, 2017, 2016, and 2015:
 
Year Ended December 31,
(dollar amounts in millions)
2017
 
2016
 
2015
SBA loans sold with servicing retained
$
413

 
$
270

 
$
233

Pretax gains resulting from above loan sales (1)
32

 
21

 
19

(1)
Recorded in gain on sale of loans.
Huntington has retained servicing responsibilities on sold SBA loans and receives annual servicing fees on the outstanding loan balances. SBA loan servicing rights are accounted for using the amortization method. A servicing asset is established at fair value at the time of the sale using a discounted future cash flow model. The servicing asset is then amortized against servicing income. Impairment, if any, is recognized when carrying value exceeds the fair value as determined by calculating the present value of expected net future cash flows.
The following tables summarize the changes in the carrying value of the servicing asset for the years ended December 31, 2017, and 2016:
(dollar amounts in millions)
2017
 
2016
Carrying value, beginning of year
$
21

 
$
20

New servicing assets created
14

 
9

Amortization and other
(8
)
 
(8
)
Carrying value, end of year
$
27

 
$
21

Fair value, end of year
$
30

 
$
24

Weighted-average life (years)
3.3

 
3.3


 
 
 
 
 
 
 
 
 
 
 
 

Servicing income was $11 million, $9 million, and $8 million for the years ended December 31, 2017, 2016, and 2015, respectively. The unpaid principal balance of SBA loans serviced for third parties was $1.4 billion, $1.1 billion and $1.0 billion at December 31, 2017, 2016, and 2015, respectively.