Mortgage Servicing Rights ("MSRs")

9 Months Ended

Sep. 30, 2021

Disclosures Pertaining to Servicing Assets and Servicing Liabilities [Abstract]

Mortgage Servicing Rights (MSRs)

Mortgage Servicing Rights (“MSRs”)

The following is a summary of the changes in the carrying value of MSRs, accounted for at fair value, for the periods indicated:

	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
(In thousands)	2021		2020		2021		2020
Balance at beginning of the period	$	127,604	$	77,203	$	92,081	$	85,638
Additions from loans sold with servicing retained	15,546		20,936		57,674		50,734
Estimate of changes in fair value due to:
Early buyout options (“EBO”) exercised	(116)		(367)		(518)		(367)
Payoffs and paydowns	(8,594)		(7,863)		(27,302)		(23,557)
Changes in valuation inputs or assumptions	(888)		(3,002)		11,617		(25,541)
Fair value at end of the period	$	133,552	$	86,907	$	133,552	$	86,907
Unpaid principal balance of mortgage loans serviced for others	$	12,720,126	$	10,139,878

The Company recognizes MSR assets upon the sale of residential real estate loans to external third parties when it retains the obligation to service the loans and the servicing fee is more than adequate compensation. The initial recognition of MSR assets from loans sold with servicing retained and subsequent changes in fair value of all MSRs are recognized in mortgage banking revenue. MSRs are subject to changes in value from actual and expected prepayment of the underlying loans.

The estimation of fair value related to MSRs is partly impacted by the Company exercising its EBO on eligible loans previously sold to the Government National Mortgage Association (“GNMA”). Under such optional repurchase program, financial institutions acting as servicers are allowed to buy back from the securitized loan pool individual delinquent mortgage loans meeting certain criteria for which the institution was the original transferor of such loans. At the option of the servicer and without prior authorization from GNMA, the servicer may repurchase such delinquent loans for an amount equal to the remaining principal balance of the loan. At the time of such repurchase, any MSR value related to such loans is derecognized.

Starting in 2019, the Company periodically purchased options for the right to purchase securities not currently held within the banks’ investment portfolios and entered into interest rate swaps in which the Company elected to not designate such derivatives as hedging instruments. These option and swap transactions were designed primarily to economically hedge a portion of the fair value adjustments related to MSRs. During the second quarter of 2020, the Company terminated these interest rate swaps. There were no such options or interest rate swaps outstanding as of September 30, 2021. For more information regarding these hedges, see Note 14 - Derivative Financial Instruments in Item 1 of this report.

The MSR asset fair value is determined by using a discounted cash flow model that incorporates the objective characteristics of the portfolio as well as subjective valuation parameters that purchasers of servicing would apply to such portfolios sold into the secondary market. The subjective factors include loan prepayment speeds, discount rates, servicing costs and other economic factors. The Company uses a third party to assist in the valuation of MSRs.