Mortgage Servicing Rights

6 Months Ended

Jun. 30, 2022

7. Mortgage Servicing Rights

The following tables present the changes in fair value of the Company’s MSR asset and other information related to the serviced portfolio (dollars in thousands).


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022			2021
Balance, beginning of period	$	100,475	$	142,125	$	86,990		$	143,742
Additions		11,210		15,815		18,510			50,115
Sales		—		(31,850)		(1,876)			(84,633)
Changes in fair value:
Due to changes in model inputs or assumptions ⁽¹⁾		13,237		4,536		24,093			28,674
Due to customer payoffs		(3,234)		(6,129)		(6,029)			(13,401)
Balance, end of period	$	121,688	$	124,497	$	121,688		$	124,497

					June 30,			December 31,
					2022			2021
Mortgage loans serviced for others ⁽²⁾					$	6,940,571		$	6,355,927
MSR asset as a percentage of serviced mortgage loans						1.75	%		1.37	%

(1)

Primarily represents normal customer payments, the impact of changes in interest rates, changes in discount rates and prepayment speed assumptions, and the refinement of other MSR model assumptions. Included in the three and six months ended June 30, 2021 are MSR asset fair value adjustments totaling $9.2 million and $18.9 million, respectively, which reflect the difference between the MSR carrying value and the sales price reflected in the letter of intent to sell the applicable MSR assets.

(2)

Represents unpaid principal balance of mortgage loans serviced for others.

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


	June 30,			December 31,
	2022			2021
Weighted average constant prepayment rate		8.42	%		10.02	%
Weighted average discount rate		12.15	%		14.32	%
Weighted average life (in years)		7.9			7.1

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,
	2022		2021
Constant prepayment rate:
Impact of 10% adverse change	$	(4,046)	$	(2,603)
Impact of 20% adverse change		(7,852)		(5,315)
Discount rate:
Impact of 10% adverse change		(5,612)		(4,070)
Impact of 20% adverse change		(10,716)		(7,753)

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 $8.9 million and $16.2 million during the three months ended June 30, 2022 and 2021, respectively, and $17.5 million and $32.3 million during the six months ended June 30, 2022 and 2021, respectively, were included in net gains from sale of loans and other mortgage production income within the consolidated statements of operations.