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Mortgage Loan Servicing and Loans Originated for Sale
 12 Months Ended
Jun. 30, 2019
Transfers and Servicing [Abstract]  
Mortgage Loan Servicing and Loans Originated for Sale
Note 4: Mortgage Loan Servicing and Loans Originated for Sale
 
The following summarizes the unpaid principal balance of loans serviced for others by the Corporation at the dates indicated:
 
At June 30,
(In Thousands)
  
2019
        
2018
  
Loans serviced for Freddie Mac
$
18,613
      
$
19,244
  
Loans serviced for Fannie Mae
89,910
    
96,384
  
Loans serviced for FHLB – San Francisco
9,724
    
11,786
  
Loans serviced for other investors
1,989
    
995
  
Total loans serviced for others
$
120,236
      
$
128,409
  
 
MSA are recorded when loans are sold to investors and the servicing of those loans is retained by the Bank.  MSA are subject to interest rate risk and may become impaired when interest rates fall and the borrowers refinance or prepay their mortgage loans.  The MSA are derived primarily from single-family loans.
 
Servicing loans for others generally consists of collecting mortgage payments, maintaining escrow accounts, disbursing payments to investors and processing foreclosures.  Income from servicing loans is reported as loan servicing and other fees in the Corporation’s Consolidated Statements of Operations, and the amortization of MSA is reported as a reduction to the loan servicing income.  Loan servicing income includes servicing fees from investors and certain fees collected from borrowers, such as late payment fees.  As of June 30, 2019 and 2018, the Corporation held borrowers’ escrow balances related to loans serviced for others of $539,000 and $577,000, respectively.
 
In estimating fair values of the MSA at June 30, 2019 and 2018, the Corporation used a weighted-average constant prepayment rate (“CPR”) of 23.86% and 13.42%, respectively, and a weighted-average discount rate of 9.11% at both dates.  Management obtained CPR estimates from an independent third party and reviewed for reasonableness given current market data.  The discount rates were derived from market data.  The MSA, which is included in prepaid expenses and other assets in the Consolidated Statements of Financial Condition, had a carrying value of $925,000 and a fair value of $627,000 at June 30, 2019.  This compares to the MSA at June 30, 2018 which had a carrying value of $998,000 and a fair value of $1.0 million.  An allowance may be recorded to adjust the carrying value of each of the nine strata of MSA to the lower of cost or fair value.  As of June 30, 2019, a total allowance of $298,000 was required for all nine categories of MSA, compared to a total allowance of $82,000 for six categories of MSA as of June 30, 2018.  Total additions to the MSA during the years ended June 30, 2019 and 2018 were $52,000 and $237,000, respectively.  Total amortization of the MSA during the years ended June 30, 2019 and 2018 was $125,000 and $136,000, respectively.
 
Loans sold to the FHLB – San Francisco were completed under the MPF Program, which entitles the Bank to a credit enhancement fee collected from FHLB – San Francisco on a monthly basis and is described in Note 1 under Loans originated and held for sale.
 
The following table summarizes the Corporation’s MSA for years ended June 30, 2019 and 2018:
 
Year Ended June 30,
  
(Dollars In Thousands)
2019
2018
  
       
MSA balance, beginning of fiscal year
$
998
  
$
897
    
Additions
52
  
237
    
Amortization
(125
)
(136
)
  
MSA balance, end of fiscal year, before allowance
925
  
998
    
Allowance
(298
)
(82
)
  
MSA balance, end of fiscal year
 $  627    $  916     
               
Fair value, beginning of fiscal year
$
1,015
  
$
811
    
Fair value, end of fiscal year
$
627
  
$
1,015
    
       
Allowance, beginning of fiscal year
$
82
  
$
158
    
Impairment provision (recovery)
216
  
(76
)
  
Allowance, end of fiscal year
$
298
  
$
82
    
       
Key Assumptions:
      
    Weighted-average discount rate
9.11
%
9.11
%
  
    Weighted-average prepayment speed
23.86
%
13.42
%
  
 
The following table summarizes the estimated future amortization of MSA for the next five years and thereafter:
 
Amount
Year Ending June 30,
(In Thousands)
   
2020
$
190
  
2021
154
  
2022
114
  
2023
82
  
2024
59
  
Thereafter
326
  
Total estimated amortization expense
$
925
  
 
The following table represents the hypothetical effect on the fair value of the Corporation’s MSA using an unfavorable shock analysis of certain key valuation assumptions as of June 30, 2019 and 2018.  This analysis is presented for hypothetical purposes only.  As the amounts indicate, changes in fair value based on changes in assumptions generally cannot be extrapolated because the relationship of the change in assumptions to the change in fair value may not be linear.
 
Year Ended June 30,
(Dollars In Thousands)
2019
2018
MSA net carrying value
$
627
  
$
916
  
     
CPR assumption (weighted-average)
23.86
%
13.42
%
Impact on fair value with 10% adverse change in prepayment speed
$
(30
)
$
(31
)
Impact on fair value with 20% adverse change in prepayment speed
$
(58
)
$
(61
)
     
Discount rate assumption (weighted-average)
9.11
%
9.11
%
Impact on fair value with 10% adverse change in discount rate
$
(20
)
$
(45
)
Impact on fair value with 20% adverse change in discount rate
$
(40
)
$
(88
)
 
Loans sold consisted of the following for the years indicated:
 
Year Ended June 30,
(In Thousands)
2019
2018
Loans sold:
    
   Servicing – released
$
551,754
  
$
1,174,618
  
   Servicing – retained
7,196
  
27,566
  
Total loans sold
$
558,950
  
$
1,202,184
  
During the years ended June 30, 2019 and 2018, the Corporation sold 16% and 12%, respectively, of its loans originated for sale to a single investor, other than Freddie Mac or Fannie Mae. 
 
Loans held for sale, at fair value, at June 30, 2019 and 2018 consisted of the following:
(In Thousands)
June 30,
2019
2018
Fixed rate
$
—
  
$
94,730
  
Adjustable rate
—
  
1,568
  
Total loans held for sale, at fair value
$
—
  
$
96,298
  
Consistent with the Corporation’s announcement on February 4, 2019 to scale back operations related to the origination of saleable single-family mortgage loans and improve on its efforts to increase the volume of portfolio single-family mortgage loan originations, total loans sold in fiscal 2019 were $559.0 million, down 54% from $1.20 billion in fiscal 2018; and there were no outstanding loans held for sale at June 30, 2019 as compared to $96.3 million at June 30, 2018. The Corporation recognized during fiscal 2019 non-recurring costs of $2.80 million in connection with reducing its saleable single-family loan origination operations, which is comprised of $1.70 million in salaries and employee benefits expenses (attributable to severance and other personnel expenses), $337,000 in premises and occupancy expenses (attributable to accelerated lease expenses and accelerated depreciation of furniture and fixtures), and $758,000 in equipment expenses (attributable to termination, charge-off, or modification of data processing and other contractual arrangements).