Regions Bank 2011 Annual Report Download - page 193

Data and assumptions used in the fair value calculation, as well as the valuation’s sensitivity to rate
fluctuations, related to mortgage servicing rights (excluding related derivative instruments) as of December 31
are as follows:
2011 2010
(Dollars in millions)
Unpaid principal balance ...................................................... $26,218 $25,375
Weighted-average prepayment speed (CPR; percentage) ............................. 27.8% 13.0%
Estimated impact on fair value of a 10% increase .............................. $ (16) $ (14)
Estimated impact on fair value of a 20% increase .............................. $ (30) $ (27)
Option-adjusted spread (basis points) ............................................ 235 657
Estimated impact on fair value of a 10% increase .............................. $ (1) $ (6)
Estimated impact on fair value of a 20% increase .............................. $ (3) $ (12)
Weighted-average coupon interest rate ........................................... 5.22% 5.47%
Weighted-average remaining maturity (months) ................................... 281 285
Weighted-average servicing fee (basis points) ..................................... 28.7 28.8
The sensitivity calculations above are hypothetical and should not be considered to be predictive of future
performance. Changes in fair value based on adverse changes in assumptions generally cannot be extrapolated
because the relationship of the change in assumption to the change in fair value may not be linear. Also, the
effect of an adverse variation in a particular assumption on the fair value of the mortgage servicing rights is
calculated without changing any other assumption, while in reality changes in one factor may result in changes in
another, which may either magnify or counteract the effect of the change. The derivative instruments utilized by
Regions would serve to reduce the estimated impacts to fair value included in the table above.
Regions uses various derivative instruments and/or trading securities to mitigate the effect of changes in the
fair value of its mortgage servicing rights in the consolidated statements of operations. The table below presents
the impact on the consolidated statements of operations associated with changes in mortgage servicing rights and
related derivative and/or trading securities for the years ended December 31:
Year Ended December 31
2011 2010 2009
(In millions)
Net interest income ............................................... $— $ 3 $20
Capital markets and investment income ............................... — 4 4
Mortgage income ................................................ (22) 16 13
Total ...................................................... $(22) $23 $37
The following table presents servicing related fees, which includes contractually specified servicing fees,
late fees and other ancillary income resulting from the servicing of mortgage loans for the years ended
December 31:
Year Ended December 31
2011 2010 2009
(In millions)
Servicing related fees and other ancillary income ....................... $85 $81 $70
Loans are sold in the secondary market with standard representations and warranties regarding certain
characteristics such as the quality of the loan, the absence of fraud, the eligibility of the loan for sale and the
future servicing associated with the loan. Regions may be required to repurchase these loans at par, or make-
whole or indemnify the purchasers for losses incurred when representations and warranties are breached.
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