Fifth Third Bancorp 91 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS purchase of free-standing derivatives and various available-for-sale  securities. The interest income, mark-to-market adjustments and  gain or loss from sale activities associated with these portfolios are  expected to economically hedge a portion of the change in value of  the MSR portfolio caused by fluctuating discount rates, earnings  rates and prepayment speeds.  Temporary impairment or impairment recovery, effected through a  change in the MSR valuation allowance, is captured as a  component of mortgage banking net revenue in the Consolidated  Statements of Income. The Bancorp maintains a non-qualifying  hedging strategy to manage a portion of the risk associated with  changes in value of the MSR portfolio. This strategy includes the  The fair value of the servicing asset is based on the present value of expected future cash flows. The following table displays the beginning and  ending fair value for the years ended December 31:  The following table presents activity related to valuations of the MSR portfolio and the impact of the non-qualifying hedging strategy, which is  included in the Consolidated Statements of Income for the years ended December 31:  transactions completed during the years ended December 31, 2010  and 2009 were as follows:  As of December 31, 2010 and 2009, the key economic assumptions  used in measuring the interests that continued to be held by the  Bancorp at the date of sale or securitization resulting from  Based on historical credit experience, expected credit losses for  residential mortgage loan servicing assets have been deemed  immaterial, as the Bancorp sold the majority of the underlying  loans without recourse. At December 31, 2010 and 2009, the  Bancorp was servicing $54.2 billion and $48.6 billion, respectively, of residential mortgage loans for other investors. The value of  interests that continue to be held by the Bancorp is subject to  credit, prepayment and interest rate risks on the sold financial  assets. At December 31, 2010, the sensitivity of the current fair  value of residual cash flows to immediate 10% and 20% adverse  changes in those assumptions are as follows:  prepayments and increased credit losses), which might magnify or  counteract the sensitivities. During 2008, the Bancorp sold $2.7 billion of automobile loans in  three separate transactions, recognizing gains of $15 million, offset  by $26 million in losses on related hedges. Each transaction  isolated the related loans through the use of a securitization trust or  a conduit, formed as QSPEs, to facilitate the securitization process.  The QSPEs issued asset-backed securities with varying levels of  These sensitivities are hypothetical and should be used with  caution. As the figures indicate, changes in fair value based on a  10% and 20% variation in assumptions typically cannot be  extrapolated because the relationship of the change in assumption  to the change in fair value may not be linear. Also, in the previous  table, the effect of a variation in a particular assumption on the fair  value of the interests that continue to be held by the Bancorp is  calculated without changing any other assumption; in reality,  changes in one factor may result in changes in another (for  example, increases in market interest rates may result in lower  Automobile Loan Securitizations  Weighted- Average  Life (in  years)  Prepayment Speed  Assumption  Residual Servicing Cash Flows  Weighted-Average  Default  Fair Impact of Adverse  Change on Fair  Value Discount Impact of Adverse  Change on Fair  Value Impact of Adverse  Change on Fair  Value  ($ in millions)  Rate  Value  Rate  10% 20%  Rate  10%  20%  Rate  10%  20%  Residential mortgage loans:  Servicing assets  Fixed  $791  5.9 13.0% ($36) (70) 10.6% ($30)  (58)  - % $ - -  Servicing assets  Adjustable  31  3.0 26.2 (2) (3) 11.9 (1)  (2)  - - - December 31, 2010  December 31, 2009  Rate Weighted- Average  Life  (in years)  Prepayment  Speed (annual)  Discount  Rate  (annual)  Weighted- Average  Default  Rate  Weighted- Average  Life  (in years)  Prepayment  Speed  (annual)  Discount  Rate  (annual)  Weighted- Average  Default  Rate  Residential mortgage loans:   Servicing assets  Fixed  6.7 10.7% 10.3% N/A 6.6 12.0% 9.8% N/A  Servicing assets  Adjustable  3.6 23.3 11.3 N/A 2.7 35.5 10.8 N/A ($ in millions)  2010  2009  2008  Securities gains, net – non-qualifying hedges on MSRs  $14 57 120 Changes in fair value and settlement of free-standing derivatives purchased  to economically hedge the MSR portfolio (Mortgage banking net revenue)  109 41 89 Provision for MSR impairment (Mortgage banking net revenue) (36) (24) (207) ($ in millions)  2010  2009  Fixed rate residential mortgage loans:   Fair value at beginning of period $667  458   Fair value at end of period  791  667  Adjustable rate residential mortgage loans:   Fair value at beginning of period 32  38   Fair value at end of period  31  32 