Quarterly report pursuant to Section 13 or 15(d)

MORTGAGE LOAN SALES AND SERVICING RIGHTS

v3.19.3
MORTGAGE LOAN SALES AND SERVICING RIGHTS
 9 Months Ended
Sep. 30, 2019
Transfers and Servicing [Abstract]  
LOAN SALES AND SECURITIZATIONS
Residential Mortgage Portfolio
The following table summarizes activity relating to residential mortgage loans sold with servicing retained for the three-month and nine-month periods ended September 30, 2019 and 2018:
 

Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(dollar amounts in millions)
 
2019
 
2018
 
2019
 
2018
Residential mortgage loans sold with servicing retained
 
$
1,238

 
$
1,047

 
$
3,025

 
$
2,787

Pretax gains resulting from above loan sales (1)
 
26

 
24

 
61

 
64

(1)
Recorded in mortgage banking income.
The following table summarizes the changes in MSRs recorded using the amortization method for the three-month and nine-month periods ended September 30, 2019 and 2018:
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(dollar amounts in millions)
 
2019
 
2018
 
2019
 
2018
Carrying value, beginning of period
 
$
184

 
$
204

 
$
211

 
$
191

New servicing assets created
 
12

 
12

 
31

 
32

Impairment (charge) recovery
 
(11
)
 
—

 
(38
)
 
7

Amortization
 
(13
)
 
(8
)
 
(32
)
 
(22
)
Carrying value, end of period
 
$
172

 
$
208

 
$
172

 
$
208

Fair value, end of period
 
$
172

 
$
222

 
$
172

 
$
222

Weighted-average life (years)
 
4.9

 
7.1

 
4.9

 
7.1


MSRs do not trade in an active, open market with readily observable prices. Therefore, the fair value of MSRs is estimated using a discounted future cash flow model. Changes in the assumptions used may have a significant impact on the valuation of MSRs. MSR values are highly sensitive to movement 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.
For MSRs under the amortization method, a summary of key assumptions and the sensitivity of the MSR value to changes in these assumptions at September 30, 2019, and December 31, 2018 follows:
 
September 30, 2019
 
December 31, 2018
 
 
 
 
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)
15.60
%
 
 
$
(8
)
 
$
(15
)
 
9.40
%
 
 
$
(6
)
 
$
(12
)
Spread over forward interest rate swap rates
889

bps
 
(5
)
 
(9
)
 
934

bps
 
(7
)
 
(13
)

Additionally, at September 30, 2019 and 2018, Huntington held MSRs recorded using the fair value method of $8 million and $11 million, respectively.
Total servicing, late fees and other ancillary fees included in mortgage banking income was $16 million and $15 million for the three-month periods ended September 30, 2019 and 2018, respectively. For the nine-month periods ended September 30, 2019 and 2018, total servicing, late fees and other ancillary fees included in mortgage banking income was $47 million and $44 million. The unpaid principal balance of residential mortgage loans serviced for third parties was $21.7 billion and $21.0 billion at September 30, 2019 and December 31, 2018, respectively.