Note 6. Loan Sales and Servicing

Loans held for sale at year end related to our secondary mortgage market activities, located in the "Loans" section of our balance sheet, are as follows:


	December 31,
		2011		2010
Loans held for sale	$	1,776	$	1,718
Less: Allowance to adjust to lower of cost or fair value		-		-
Loans held for sale	$	1,776	$	1,718

The following summarizes the secondary mortgage market activities:


	Years Ended December 31,
		2011		2010		2009
Proceeds from sales of mortgage loans	$	54,744	$	82,394	$	132,758

Gain on sales of mortgage loans	$	1,027	$	1,784	$	2,232

Mortgage loans serviced for others are not included in the accompanying consolidated balance sheet. The unpaid principal balances of these loans are summarized as follows:


	December 31,
		2011		2010
Federal Home Loan Mortgage Corporation	$	46,538	$	57,906
Federal National Mortgage Association		260,438		271,040
IHDA		-		-
	$	306,976	$	328,946

Custodial escrow balances maintained in connection with the foregoing loan servicing were approximately $2.5 million and $2.6 million at December 31, 2011 and 2010, respectively.

Following is an analysis of the changes in originated mortgage servicing rights:


	Years Ended December 31,
		2011			2010			2009
Balance at beginning of year	$	2,425		$	2,885		$	2,890
Originated mortgage servicing rights		277			452			821
Mortgage servicing valuation allowance		(89	)		(225	)		-
Amortization		(524	)		(687	)		(826	)
Balance at end of year	$	2,089		$	2,425		$	2,885

Management periodically evaluates assets for impairment. For purposes of measuring impairment, servicing assets are stratified by loan type. Impairment is recognized if the carrying value of servicing assets exceeds the fair value of the stratum. The fair value of capitalized mortgage servicing rights was $2.3 million and $2.7 million at December 31, 2011 and 2010, respectively. Fair value was determined using discount rates ranging from 9.50% to 15.50% and prepayment speeds ranging from 16.29% to 19.46% depending on the stratification of the specific right in 2011. The discount rates used in 2010 ranged from 9.50% to 17.00% and the prepayment speeds used were between 15.55% and 17.11%.

Estimated amortization expense for each of the next five years is as follows:


2012	$	480
2013		470
2014		450
2015		425
2016		410