MORTGAGE SERVICING RIGHTS

3 Months Ended

Mar. 31, 2018

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 March 31, 2018 and December 31, 2017 were $841.4 million and $834.5 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 March 31, 2018 is a decrease in the fair value of $19.9 million.

The impact of a 200-basis point increase in the discount rate at March 31, 2018 is a decrease in the fair value of $38.4 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 months ended March 31, 2018 and 2017 is shown in the table below:


	For the three months ended
	March 31,
(in thousands)	2018		2017
Beginning balance	$	634,756	$	521,930
Additions, following the sale of loan		30,922		72,925
Amortization		(32,161)		(28,900)
Pre-payments and write-offs		(2,486)		(3,425)
Ending balance	$	631,031	$	562,530

The following tables summarize the components of the net carrying value of the Company’s acquired and originated MSRs as of March 31, 2018 and December 31, 2017:


	As of March 31, 2018
	Gross		Accumulated		Net
(in thousands)	carrying value		amortization		carrying value
Acquired MSRs	$	183,715	$	(125,237)	$	58,478
Originated MSRs		839,745		(267,192)		572,553
Total	$	1,023,460	$	(392,429)	$	631,031


	As of December 31, 2017
	Gross		Accumulated		Net
(in thousands)	carrying value		amortization		carrying value
Acquired MSRs	$	183,715	$	(121,643)	$	62,072
Originated MSRs		820,137		(247,453)		572,684
Total	$	1,003,852	$	(369,096)	$	634,756

The expected amortization of MSRs recorded as of March 31, 2018 is shown in the table below. Actual amortization may vary from these estimates.


	Originated MSRs		Acquired MSRs		Total MSRs
(in thousands)	Amortization		Amortization		Amortization
Nine Months Ending December 31,
2018	$	84,201	$	8,575	$	92,776
Year Ending December 31,
2019	$	100,069	$	10,517	$	110,586
2020		87,958		9,091		97,049
2021		76,770		7,466		84,236
2022		63,527		5,639		69,166
2023		52,262		4,960		57,222
Thereafter		107,766		12,230		119,996
Total	$	572,553	$	58,478	$	631,031