KeyBank 2013 Annual Report Download - page 185

collateral for those contracts in a net liability position, taking into account all collateral already posted. If
KeyCorp’s ratings had been downgraded below investment grade as of December 31, 2013, payments of $1
million would have been required to either terminate the contracts or post additional collateral for those contracts
in a net liability position, taking into account all collateral already posted.
9. Mortgage Servicing Assets
We originate and periodically sell commercial mortgage loans but continue to service those loans for the buyers.
We also may purchase the right to service commercial mortgage loans for other lenders. A servicing asset is
recorded if we purchase or retain the right to service loans in exchange for servicing fees that exceed the going
market rate. Changes in the carrying amount of mortgage servicing assets are summarized as follows:
Year ended December 31,
in millions 2013 2012
Balance at beginning of period $ 204 $ 173
Servicing retained from loan sales 48 47
Purchases 150(a) 44
Amortization (70) (60)
Balance at end of period $ 332 $ 204
Fair value at end of period $ 386 $ 238
(a) Amount includes $120 million in mortgage servicing assets that were acquired from Bank of America’s Global Mortgages & Securitized
Products business during 2013. See Note 13 (“Acquisitions and Discontinued Operations”) for further details regarding this acquisition.
The fair value of mortgage servicing assets is determined by calculating the present value of future cash flows
associated with servicing the loans. This calculation uses a number of assumptions that are based on current
market conditions. The range and weighted-average of the significant unobservable inputs used to fair value our
mortgage servicing assets at December 31, 2013, and 2012, along with the valuation techniques, are shown in the
following table:
December 31, 2013
dollars in millions Valuation Technique
Significant
Unobservable Input
Range
(Weighted-Average)
Mortgage servicing assets Discounted cash flow Prepayment speed 0.9 - 72.8%(11.0%)
Expected defaults 1.1 - 3.0%(2.1%)
Residual cash flows discount rate 7.0 - 15.0%(7.9%)
Escrow earn rate 0.3 - 3.3%(1.5%)
Servicing cost $150 - $9,296($962)
Loan assumption rate 0.0 - 3.0%(1.43%)
Percentage late 0.0 - 2.0%(0.35%)
December 31, 2012
dollars in millions Valuation Technique
Significant
Unobservable Input
Range
(Weighted-Average)
Mortgage servicing assets Discounted cash flow Prepayment speed 0.9 - 75.8%(8.60%)
Expected defaults 1.00 - 3.00%(2.40%)
Residual cash flows discount rate 7.00 - 15.00%(9.00%)
Escrow earn rate 0.24 - 2.56%(1.50%)
Servicing cost $916 - $16,604($2,483)
Loan assumption rate 0.00 - 3.00%(2.32%)
Percentage late 0.00 - 2.00%(0.22%)
If these economic assumptions change or prove incorrect, the fair value of mortgage servicing assets may also
change. The volume of loans serviced, expected credit losses, and the value assigned to escrow deposits are
critical to the valuation of servicing assets. At December 31, 2013, a 1.00% decrease in the value assigned to the
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