Huntington National Bank 2011 Annual Report Download - page 176

A summary of key assumptions and the sensitivity of the MSR value at December 31, 2011 to changes in
these assumptions follows:
Decline in fair value due to
Actual
10%
adverse
change
20%
adverse
change
(dollar amounts in thousands)
Constant prepayment rate .......................... 20.11% $(4,720) $(9,321)
Spread over forward interest rate swap rates ........... 650bps (1,511) (3,023)
MSR values are very sensitive to movements 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 hedges the value of certain MSRs against changes in value attributable
to changes in interest rates using a combination of derivative instruments and trading account securities.
Total servicing fees included in mortgage banking income amounted to $49.1 million, $48.1 million, and
$48.5 million in 2011, 2010, and 2009, respectively. The unpaid principal balance of residential mortgage loans
serviced for third parties was $15.9 billion, $15.9 billion, and $16.0 billion at December 31, 2011, 2010, and
2009, respectively.
Automobile Loans and Leases
In 2011, Huntington transferred automobile loans totaling $1.0 billion to a trust in a securitization
transaction and received $1.0 billion of net proceeds. The securitization qualified for sale accounting. As a result
of this transaction, Huntington recognized a $15.5 million gain which is reflected in noninterest income on the
Consolidated Statements of Income and recorded a $16.0 million servicing asset which is reflected in accrued
income and other assets on the Consolidated Balance Sheets.
In anticipation of completing another securitization in the first half of 2012, $1.3 billion of automobile loans
were transferred from the automobile loan portfolio to loans held for sale during the 2011 fourth quarter. At
December 31, 2011, and through the date of this filing, the Company has not yet identified the specific loans that
would be securitized or finalized terms of the securitization.
Automobile loan servicing rights are accounted for using the amortization method. A servicing asset is
established at fair value at the time of the sale using the following assumptions: actual servicing income of 0.55%
— 1.00%, adequate compensation for servicing of 0.45% — 0.70%, other ancillary fees of approximately 0.35%
— 0.50%, a discount rate of approximately 10.00% and an estimated return on payments prior to remittance to
investors. The servicing asset is then amortized against servicing income. Impairment, if any, is recognized when
carrying value exceeds the fair value as determined by calculating the present value of expected net future cash
flows. The primary risk characteristic for measuring servicing assets is payoff rates of the underlying loan pools.
Valuation calculations rely on the predicted payoff assumption and, if actual payoff is quicker than expected,
then future value would be impaired.
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