MORTGAGE SERVICING RIGHTS

6 Months Ended

Jun. 30, 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 June 30, 2018 and December 31, 2017 were $842.6 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 June 30, 2018 is a decrease in the fair value of $28.4 million.

The impact of a 200-basis point increase in the discount rate at June 30, 2018 is a decrease in the fair value of $54.7 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 six months ended June 30, 2018 and 2017 is shown in the table below:


	For the three months ended				For the six months ended
	June 30,				June 30,
(in thousands)	2018		2017		2018		2017
Beginning balance	$	631,031	$	562,530	$	634,756	$	521,930
Additions, following the sale of loan		42,559		44,650		73,481		117,574
Purchases		1,814		—		1,814		—
Amortization		(32,801)		(29,325)		(64,962)		(58,224)
Pre-payments and write-offs		(3,689)		(4,696)		(6,175)		(8,121)
Ending balance	$	638,914	$	573,159	$	638,914	$	573,159

The following tables summarize the components of the net carrying value of the Company’s acquired and originated MSRs as of June 30, 2018 and December 31, 2017:


	As of June 30, 2018
	Gross		Accumulated		Net
(in thousands)	carrying value		amortization		carrying value
Acquired MSRs	$	185,529	$	(130,584)	$	54,945
Originated MSRs		860,106		(276,137)		583,969
Total	$	1,045,635	$	(406,721)	$	638,914


	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 June 30, 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
Six Months Ending December 31,
2018	$	57,405	$	5,626	$	63,031
Year Ending December 31,
2019	$	105,354	$	10,483	$	115,837
2020		92,603		9,128		101,731
2021		80,878		7,688		88,566
2022		67,591		5,901		73,492
2023		56,169		5,129		61,298
Thereafter		123,969		10,990		134,959
Total	$	583,969	$	54,945	$	638,914