Wells Fargo 2015 Annual Report Download - page 195

Note 9: Mortgage Banking Activities
Mortgage banking activities, included in the Community We apply the amortization method to commercial MSRs and
Banking and Wholesale Banking operating segments, consist of apply the fair value method to residential MSRs. Table 9.1
residential and commercial mortgage originations, sale activity presents the changes in MSRs measured using the fair value
and servicing. method.
Table 9.1: Analysis of Changes in Fair Value MSRs
Year ended December 31,
(in millions) 2015 2014 2013
Fair value, beginning of year $ 12,738 15,580 11,538
Servicing from securitizations or asset transfers 1,556 1,196 3,469
Sales and other (1) (9) (7) (583)
Net additions 1,547 1,189 2,886
Changes in fair value:
Due to changes in valuation model inputs or assumptions:
Mortgage interest rates (2) 247 (2,150) 4,362
Servicing and foreclosure costs (3) (83) (20) (228)
Discount rates (4) — (55) —
Prepayment estimates and other (5) 50 103 (736)
Net changes in valuation model inputs or assumptions 214 (2,122) 3,398
Other changes in fair value (6) (2,084) (1,909) (2,242)
Total changes in fair value (1,870) (4,031) 1,156
Fair value, end of year $ 12,415 12,738 15,580
(1) Includes sales and transfers of MSRs, which can result in an increase of total reported MSRs if the sales or transfers are related to nonperforming loan portfolios.
(2) Includes prepayment speed changes as well as other valuation changes due to changes in mortgage interest rates (such as changes in estimated interest earned on
custodial deposit balances).
(3) Includes costs to service and unreimbursed foreclosure costs.
(4) Reflects discount rate assumption change, excluding portion attributable to changes in mortgage interest rates.
(5) Represents changes driven by other valuation model inputs or assumptions including prepayment speed estimation changes and other assumption updates. Prepayment
speed estimation changes are influenced by observed changes in borrower behavior and other external factors that occur independent of interest rate changes.
(6) Represents changes due to collection/realization of expected cash flows over time.
Table 9.2 presents the changes in amortized MSRs.
Table 9.2: Analysis of Changes in Amortized MSRs
Year ended December 31,
(in millions) 2015 2014 2013
Balance, beginning of year $ 1,242 1,229 1,160
Purchases 144 157 176
Servicing from securitizations or asset transfers 180 110 147
Amortization (258) (254) (254)
Balance, end of year (1) $ 1,308 1,242 1,229
Fair value of amortized MSRs:
Beginning of year $ 1,637 1,575 1,400
End of year 1,680 1,637 1,575
(1) Commercial amortized MSRs are evaluated for impairment purposes by the following risk strata: agency (GSEs) and non-agency. There was no valuation allowance
recorded for the periods presented on the commercial amortized MSRs.
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