Mortgage Servicing Rights

6 Months Ended

Jun. 30, 2020

7. Mortgage Servicing Rights

The following tables present the changes in fair value of the Company’s MSR asset, as included in other assets within the consolidated balance sheets, and other information related to the serviced portfolio (dollars in thousands).


	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020		2019
Balance, beginning of period	$	30,299		$	62,049		$	55,504	$	66,102
Additions		59,440			2,547			63,915		4,408
Sales		—			—			(18,650)		—
Changes in fair value:
Due to changes in model inputs or assumptions ⁽¹⁾		(6,284)			(8,739)			(15,878)		(13,772)
Due to customer payoffs		(2,191)			(2,162)			(3,627)		(3,043)
Balance, end of period	$	81,264		$	53,695		$	81,264	$	53,695

	June 30,			December 31,
	2020			2019
Mortgage loans serviced for others	$	8,635,201		$	4,948,441
MSR asset as a percentage of serviced mortgage loans		0.94	%		1.12	%

(1)

Primarily represents normal customer payments, changes in discount rates and prepayment speed assumptions, which are primarily affected by changes in interest rates and the refinement of other MSR model assumptions.

The key assumptions used in measuring the fair value of the Company’s MSR asset were as follows.


	June 30,		December 31,
	2020		2019
Weighted average constant prepayment rate	13.45	%	13.16	%
Weighted average discount rate	14.62	%	11.14	%
Weighted average life (in years)	5.9		6.0

A sensitivity analysis of the fair value of the Company’s MSR asset to certain key assumptions is presented in the following table (in thousands).


	June 30,		December 31,
	2020		2019
Constant prepayment rate:
Impact of 10% adverse change	$	(3,838)	$	(3,072)
Impact of 20% adverse change		(7,458)		(5,943)
Discount rate:
Impact of 10% adverse change		(3,434)		(2,094)
Impact of 20% adverse change		(6,569)		(4,028)

This sensitivity analysis presents the effect of hypothetical changes in key assumptions on the fair value of the MSR asset. The effect of such hypothetical change in assumptions generally cannot be extrapolated because the relationship of the change in one key assumption to the change in the fair value of the MSR asset is not linear. In addition, in the analysis, the impact of an adverse change in one key assumption is calculated independent of any impact on other assumptions. In reality, changes in one assumption may change another assumption.

Contractually specified servicing fees, late fees and ancillary fees earned of $5.1 million and $6.6 million during the three months ended June 30, 2020 and 2019, respectively, and $11.0 million and $12.9 million during the six months ended June 30, 2020 and 2019, respectively, were included in net gains from sale of loans and other mortgage production income within the consolidated statements of operations.