MORTGAGE SERVICING RIGHTS

9 Months Ended

Sep. 30, 2017

NOTE 4—MORTGAGE SERVICING RIGHTS

Mortgage Servicing Rights (“MSRs”) represent the carrying value of the servicing rights retained by the Company for mortgage loans originated and sold. The initial capitalized amount is equal to the estimated fair value of the expected net cash flows associated with the servicing rights. MSRs are amortized using the interest method over the period that servicing income is expected to be received.

The fair values of the MSRs at September 30, 2017 and December 31, 2016 were $773.9 million and $669.4 million, respectively. The Company uses a discounted static cash flow valuation approach, and the key economic assumption is the discount rate. For example, see the following sensitivities:

The impact of a 100-basis point increase in the discount rate at September 30, 2017 is a decrease in the fair value of $24.6 million.

The impact of a 200-basis point increase in the discount rate at September 30, 2017 is a decrease in the fair value of $47.6 million.

These sensitivities are hypothetical and should be used with caution. These estimates do not include interplay among assumptions and are estimated as a portfolio rather than individual assets.

Activity related to capitalized MSRs for the three and nine months ended September 30, 2017 and 2016 is shown in the table below:


	For the three months ended				For the nine months ended
	September 30,				September 30,
(in thousands)	2017		2016		2017		2016
Beginning balance	$	573,159	$	468,093	$	521,930	$	412,348
Additions, following the sale of loan		48,174		60,955		165,748		124,982
Purchases		—		—		—		42,705
Amortization		(30,174)		(26,074)		(88,398)		(72,030)
Pre-payments and write-offs		(3,250)		(6,296)		(11,371)		(11,327)
Ending balance	$	587,909	$	496,678	$	587,909	$	496,678

The following tables summarize the components of the net carrying value of the Company’s acquired and originated MSRs as of September 30, 2017 and December 31, 2016:


	As of September 30, 2017
	Gross		Accumulated		Net
(in thousands)	carrying value		amortization		carrying value
Acquired MSRs	$	175,934	$	(117,861)	$	58,073
Originated MSRs		760,795		(230,959)		529,836
Total	$	936,729	$	(348,820)	$	587,909


	As of December 31, 2016
	Gross		Accumulated		Net
(in thousands)	carrying value		amortization		carrying value
Acquired MSRs	$	175,934		(104,264)	$	71,670
Originated MSRs		642,030		(191,770)		450,260
Total	$	817,964	$	(296,034)	$	521,930

The expected amortization of MSRs recorded as of September 30, 2017 is shown in the table below. Actual amortization may vary from these estimates.


	Originated MSRs		Acquired MSRs		Total MSRs
(in thousands)	Amortization		Amortization		Amortization
Three Months Ending December 31,
2017	$	26,528	$	3,065	$	29,593
Year Ending December 31,
2018	$	98,640	$	11,310	$	109,950
2019		84,761		10,119		94,880
2020		76,136		8,536		84,672
2021		66,589		6,821		73,410
2022		53,579		4,918		58,497
Thereafter		123,603		13,304		136,907
Total	$	529,836	$	58,073	$	587,909