Quarterly report pursuant to Section 13 or 15(d)

LOAN SALES AND SECURITIZATIONS

v3.10.0.1
LOAN SALES AND SECURITIZATIONS
 9 Months Ended
Sep. 30, 2018
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 three-month and nine-month periods ended September 30, 2018 and 2017:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(dollar amounts in millions)
2018
 
2017
 
2018
 
2017
Residential mortgage loans sold with servicing retained
$
1,047

 
$
1,179

 
$
2,787

 
$
2,824

Pretax gains resulting from above loan sales (1)
24

 
27

 
64

 
66

(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, 2018 and 2017:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(dollar amounts in millions)
2018
 
2017
 
2018
 
2017
Carrying value, beginning of period
$
204

 
$
176

 
$
191

 
$
172

New servicing assets created
12

 
13

 
32

 
31

Impairment recovery (charge)
—

 
1

 
7

 
—

Amortization
(8
)
 
(7
)
 
(22
)
 
(20
)
Carrying value, end of period
$
208

 
$
183

 
$
208

 
$
183

Fair value, end of period
$
222

 
$
184

 
$
222

 
$
184

Weighted-average life (years)
7.1

 
7.0

 
7.1

 
7.0


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 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. 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 September 30, 2018, and December 31, 2017 follows:
 
September 30, 2018
 
December 31, 2017
 
 
 
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)
8.10
%
 
$
(5
)
 
$
(10
)
 
8.30
%
 
$
(5
)
 
$
(10
)
Spread over forward interest rate swap rates
941
 bps
 
(7
)
 
(14
)
 
1,049
 bps
 
(7
)
 
(13
)


Additionally, at September 30, 2018 and 2017, Huntington held MSRs recorded using the fair value method of $11 million and $12 million, respectively.
Total servicing, late and other ancillary fees included in mortgage banking income were $15 million and $14 million for the three-month periods ended September 30, 2018 and 2017, respectively. For the nine-month periods ended September 30, 2018 and 2017, total servicing, late and other ancillary fees included in mortgage banking income were $44 million and $42 million. The unpaid principal balance of residential mortgage loans serviced for third parties was $20.6 billion and $19.8 billion at September 30, 2018 and December 31, 2017, respectively.