Quarterly report pursuant to Section 13 or 15(d)

MORTGAGE LOAN SALES AND SERVICING RIGHTS

v3.20.1
MORTGAGE LOAN SALES AND SERVICING RIGHTS
 3 Months Ended
Mar. 31, 2020
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 periods ended March 31, 2020 and 2019:
 
 
Three Months Ended
March 31,
(dollar amounts in millions)
 
2020
 
2019
Residential mortgage loans sold with servicing retained
 
$
1,428

 
$
833

Pretax gains resulting from above loan sales (1)
 
39

 
12

(1)
Recorded in mortgage banking income
On January 1, 2020, Huntington made an irrevocable election to subsequently measure all classes of residential MSRs at fair value in order to eliminate any potential measurement mismatch between our economic hedges and the MSRs. The impact of the irrevocable election was not material.
The following table summarizes the changes in MSRs recorded using the fair value method for the three-month periods ended March 31, 2020 and 2019 (1):
 
 
Three Months Ended
March 31,
(dollar amounts in millions)
 
2020
 
2019 (1)
Fair value, beginning of period
 
$
7

 
$
10

Fair value election for servicing assets previously measured using the amortized method
 
205

 
—

New servicing assets created
 
14

 
—

Change in fair value during the period due to:
 
 
 
 
Time decay (2)
 
(2
)
 
—

Payoffs (3)
 
(6
)
 
—

Changes in valuation inputs or assumptions (4)
 
(53
)
 
—

Fair value, end of period
 
$
165

 
$
10

Weighted-average life (years)
 
6.4

 
6.6

(1)
Prior to January 1, 2020, substantially all of Huntington’s MSR assets were recorded at amortized cost.
(2)
Represents decrease in value due to passage of time, including the impact from both regularly scheduled loan principal payments and partial loan paydowns.
(3)
Represents decrease in value associated with loans that paid off during the period.
(4)
Represents change in value resulting primarily from market-driven changes in interest rates and prepayment speeds.
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 fair value method, a summary of key assumptions and the sensitivity of the MSR value to changes in these assumptions at March 31, 2020, and December 31, 2019 follows:
 
March 31, 2020
 
December 31, 2019 (1)
 
 
 
 
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)
17.83
%
 
 
$
(9
)
 
$
(17
)
 
8.21
%
 
 
$
—

 
$
—

Spread over forward interest rate swap rates
846

bps
 
(4
)
 
(8
)
 
824

bps
 
—

 
—


(1)
Prior to January 1, 2020, substantially all of Huntington’s MSR assets were recorded at amortized cost.
Total servicing, late fees and other ancillary fees included in mortgage banking income was $17 million and $15 million for the three-month periods ended March 31, 2020 and 2019, respectively. The unpaid principal balance of
residential mortgage loans serviced for third parties was $22.8 billion and $22.4 billion at March 31, 2020 and December 31, 2019, respectively.