US Bank 2013 Annual Report Download - page 106

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Changes in fair value of capitalized MSRs for the years ended December 31, are summarized as follows:
(Dollars in Millions) 2013 2012 2011
Balance at beginning of period ............................................................................. $1,700 $1,519 $1,837
Rights purchased ........................................................................................ 84235
Rights capitalized ........................................................................................ 769 957 619
Changes in fair value of MSRs
Due to fluctuations in market interest rates (a) ........................................................ 617 (249) (619)
Due to revised assumptions or models (b) ............................................................ 33 (21) 33
Other changes in fair value (c) ........................................................................ (447) (548) (386)
Balance at end of period ................................................................................... $2,680 $1,700 $1,519
(a) Includes changes in MSR value associated with changes in market interest rates, including estimated prepayment rates and anticipated earnings on escrow deposits.
(b) Includes changes in MSR value not caused by changes in market interest rates, such as changes in cost to service, ancillary income, and discount rate, as well as the impact of any
model changes.
(c) Primarily represents changes due to realization of expected cash flows over time (decay).
The estimated sensitivity to changes in interest rates of the fair value of the MSRs portfolio and the related derivative
instruments as of December 31 follows:
2013 2012
(Dollars in Millions)
Down
100 bps
Down
50 bps
Down
25 bps
Up
25 bps
Up
50 bps
Up
100 bps
Down
100 bps
Down
50 bps
Down
25 bps
Up
25 bps
Up
50 bps
Up
100 bps
MSR portfolio .................... $(435) $(199) $(93) $ 82 $ 154 $ 287 $(370) $(217) $(118) $ 126 $ 249 $ 480
Derivative instrument hedges ... 399 194 91 (82) (157) (301) 473 249 124 (121) (243) (486)
Net sensitivity ................. $ (36) $ (5) $ (2) $ – $ (3) $ (14) $ 103 $ 32 $ 6 $ 5 $ 6 $ (6)
The fair value of MSRs and their sensitivity to changes in
interest rates is influenced by the mix of the servicing
portfolio and characteristics of each segment of the portfolio.
The Company’s servicing portfolio consists of the distinct
portfolios of government-insured mortgages, conventional
mortgages and Mortgage Revenue Bond Programs
(“MRBP”). The servicing portfolios are predominantly
comprised of fixed-rate agency loans with limited adjustable-
rate or jumbo mortgage loans. The MRBP division
specializes in servicing loans made under state and local
housing authority programs. These programs provide
mortgages to low-income and moderate-income borrowers
and are generally government-insured programs with a
favorable rate subsidy, down payment and/or closing cost
assistance.
A summary of the Company’s MSRs and related characteristics by portfolio as of December 31 follows:
2013 2012
(Dollars in Millions) MRBP Government Conventional (b) Total MRBP Government Conventional (b) Total
Servicing portfolio ........................ $15,896 $41,659 $169,287 $226,842 $14,143 $39,048 $162,446 $215,637
Fair value ................................. $ 180 $ 500 $ 2,000 $ 2,680 $ 154 $ 314 $ 1,232 $ 1,700
Value (bps) (a) ............................ 113 120 118 118 109 80 76 79
Weighted-average servicing fees (bps) .. 39 32 29 30 40 33 30 31
Multiple (value/servicing fees) ............ 2.90 3.75 4.07 3.93 2.73 2.42 2.53 2.55
Weighted-average note rate .............. 4.70% 4.24% 4.17% 4.22% 5.13% 4.57% 4.48% 4.54%
Weighted-average age (in years) ......... 3.8 2.6 2.5 2.6 4.2 2.4 2.5 2.6
Weighted-average expected prepayment
(constant prepayment rate) ............ 13.5% 11.5% 10.9% 11.2% 13.2% 21.2% 20.4% 20.1%
Weighted-average expected life
(in years) ............................... 6.2 6.9 7.2 7.1 6.1 4.2 4.1 4.2
Weighted-average discount rate.......... 11.9% 11.2% 9.8% 10.2% 12.1% 11.4% 10.0% 10.4%
(a) Value is calculated as fair value divided by the servicing portfolio.
(b) Represents loans sold primarily to GSEs.
104 U.S. BANCORP