MORTGAGE SERVICING RIGHTS

3 Months Ended

Mar. 31, 2020

Servicing loans for others generally consists of collecting mortgage payments, maintaining escrow accounts, disbursing payments to investors, and conducting foreclosure proceedings. Loan servicing income is recorded on the accrual basis and includes servicing fees from investors and certain charges collected from borrowers. Mortgage loans serviced for others are not reported as assets. The principal balances of these loans are as follows:



(Dollars in thousands)	March 31, 2020		December 31, 2019
Mortgage loans serviced for:
Federal Home Loan Mortgage Corporation ("Freddie Mac")	$	352,107	$	379,339
Other financial institutions	126,203		134,140
Total mortgage loans serviced for others	$	478,310	$	513,479

Custodial account balances maintained in connection with serviced loans totaled $4.8 million and $8.0 million at March 31, 2020 and December 31, 2019, respectively.

The Company measures servicing rights at fair value at each reporting date and reports changes in the fair value of servicing assets in earnings in the period in which the changes occur. Fair value is based on a valuation model that calculates the present value of estimated future net servicing income. Activities for mortgage servicing rights are as follows:



	Three Months Ended March 31,
(Dollars in thousands)	2020			2019
Beginning balance	$	2,657		$	3,463
Additions	—			155
Disposals	—			—
Change in fair value due to changes in assumptions	—			—
Other changes in fair value	(395		)	(146		)
Ending balance	$	2,262		$	3,472

Fair value as of March 31, 2020 was determined using a discount rate of 10%, prepayment speeds ranging from 6.8% to 71.2%, depending on the stratification of the specific right, and a weighted average default rate of 5%. The weighted average prepayment speed at March 31, 2020 was 27.8%. Fair value as of December 31, 2019 was determined using a discount rate of 10%, prepayment speeds ranging from 6.0% to 58.7%, depending on the stratification of the specific right, and a weighted average default rate of 5%. The weighted average prepayment speed at December 31, 2019 was 22.8%.