Servicing Rights

12 Months Ended

Dec. 31, 2021

Servicing Rights

Servicing Rights

Note 9. Servicing rights

The Company performs servicing activities for third parties, which primarily include collecting principal, interest and other payments from borrowers, remitting the corresponding payments to investors and monitoring delinquencies. The Company’s servicing fees are specified by pooling and servicing agreements.

The table below presents information about servicing rights.

	Year Ended December 31,
(in thousands)	2021		2020
SBA servicing rights, at amortized cost
Beginning net carrying amount	$	18,764	$	17,660
Additions due to loans sold, servicing retained		8,572		4,153
Amortization		(4,021)		(3,555)
Impairment (recovery)		(1,158)		506
Ending net carrying amount	$	22,157	$	18,764
Multi-family servicing rights, at amortized cost
Beginning net carrying amount	$	19,059	$	13,135
Additions due to loans sold, servicing retained		18,147		8,850
Acquisitions		30,503		—
Amortization		(5,409)		(2,926)
Ending net carrying amount	$	62,300	$	19,059
Total servicing rights, at amortized cost	$	84,457	$	37,823
Residential MSRs, at fair value
Beginning net carrying amount	$	76,840	$	91,174
Additions due to loans sold, servicing retained		46,286		43,701
Loan pay-offs		(19,904)		(20,777)
Unrealized gains (losses)		16,920		(37,258)
Ending fair value amount	$	120,142	$	76,840
Total servicing rights	$	204,599	$	114,663

Servicing rights – SBA and multi-family portfolio. The Company’s SBA and multi-family servicing rights are carried at amortized cost and evaluated quarterly for impairment. The Company estimates the fair value of these servicing rights by using a combination of internal models and data provided by third-party valuation experts. The assumptions used in our internal models include forward prepayment rates, forward default rates, discount rates, and servicing expenses.

The Company’s models calculate the present value of expected future cash flows utilizing assumptions that we believe are used by market participants. We derive forward prepayment rates, forward default rates and discount rates from historical experience adjusted for prevailing market conditions. Components of the estimated future cash flows include servicing fees, late fees, other ancillary fees and cost of servicing.

The table below presents additional information about SBA and multi-family servicing rights.

	As of December 31, 2021				As of December 31, 2020
(in thousands)	UPB		Carrying Value		UPB		Carrying Value
SBA	$	856,188	$	22,157	$	643,135	$	18,764
Multi-family		4,232,969		62,300		1,501,998		19,059
Total	$	5,089,157	$	84,457	$	2,145,133	$	37,823

The table below presents significant assumptions used in the estimated valuation of SBA and multi-family servicing rights carried at amortized cost.

		December 31, 2021						December 31, 2020
		Range of input values				Weighted Average		Range of input values				Weighted Average
SBA servicing rights
	Forward prepayment rate	7.9	-	21.0	%	8.9	%	6.7	-	20.8	%	8.5	%
	Forward default rate	0.0	-	10.4	%	9.1	%	0.0	-	10.5	%	8.2	%
	Discount rate	10.0	-	21.3	%	10.7	%	4.5	-	4.5	%	4.5	%
	Servicing expense	0.4	-	0.4	%	0.4	%	0.4	-	0.4	%	0.4	%
Multi-family servicing rights
	Forward prepayment rate	0.0	-	7.3	%	3.5	%	0.1	-	5.1	%	2.4	%
	Forward default rate	0.0	-	1.3	%	1.0	%	0.0	-	0.4	%	0.3	%
	Discount rate	6.0	-	6.0	%	6.0	%	6.0	-	6.0	%	6.0	%
	Servicing expense	0.0	-	0.8	%	0.1	%	0.2	-	0.3	%	0.2	%

Assumptions can change between and at each reporting period as market conditions and projected interest rates change.

The table below reflects the possible impact of 10% and 20% adverse changes to key assumptions on SBA and multi-family servicing rights.

(in thousands)	December 31, 2021		December 31, 2020
SBA servicing rights
Forward prepayment rate
Impact of 10% adverse change	$	(670)	$	(729)
Impact of 20% adverse change	$	(1,305)	$	(1,420)
Default rate
Impact of 10% adverse change	$	(155)	$	(150)
Impact of 20% adverse change	$	(309)	$	(298)
Discount rate
Impact of 10% adverse change	$	(746)	$	(395)
Impact of 20% adverse change	$	(1,443)	$	(777)
Servicing expense
Impact of 10% adverse change	$	(1,344)	$	(1,250)
Impact of 20% adverse change	$	(2,687)	$	(2,501)
Multi-family servicing rights
Forward prepayment rate
Impact of 10% adverse change	$	(291)	$	(163)
Impact of 20% adverse change	$	(575)	$	(324)
Default rate
Impact of 10% adverse change	$	(25)	$	(6)
Impact of 20% adverse change	$	(50)	$	(13)
Discount rate
Impact of 10% adverse change	$	(1,910)	$	(678)
Impact of 20% adverse change	$	(3,726)	$	(1,324)
Servicing expense
Impact of 10% adverse change	$	(2,659)	$	(1,947)
Impact of 20% adverse change	$	(5,318)	$	(3,894)

The table below presents estimated future amortization expense for SBA and Multi-family servicing rights.

(in thousands)	December 31, 2021
2022	$	12,509
2023		10,922
2024		9,645
2025		8,565
2026		7,685
Thereafter		35,131
Total	$	84,457

Residential MSRs. The Company's residential MSRs consist of conforming conventional loans sold to Fannie Mae and Freddie Mac or loans securitized in Ginnie Mae securities. Similarly, the government loans serviced by the Company are securitized through Ginnie Mae, whereby the Company is insured against loss by the Federal Housing Administration or partially guaranteed against loss by the Department of Veteran Affairs.

The table below presents additional information about residential MSRs carried at fair value.

	December 31, 2021				December 31, 2020
(in thousands)	UPB		Fair Value		UPB		Fair Value
Fannie Mae	$	4,056,595	$	41,698	$	3,700,450	$	27,632
Ginnie Mae		4,131,904		45,017		2,757,124		25,899
Freddie Mac		2,807,186		33,427		3,071,312		23,309
Total	$	10,995,685	$	120,142	$	9,528,886	$	76,840

The table below presents significant assumptions used in the valuation of residential MSRs carried at fair value.

		December 31, 2021						December 31, 2020
		Range of input values				Weighted Average		Range of input values				Weighted Average
Residential MSRs
	Forward prepayment rate	8.4	-	20.9	%	9.5	%	12.6	-	31.4	%	14.3	%
	Discount rate	9.0	-	11.0	%	9.4	%	9.1	-	11.7	%	9.8	%
	Servicing expense	$70	-	$85		$74		$70	-	$85		$74

Assumptions can change between and at each reporting period as market conditions and projected interest rates change.

The table below presents the possible impact of 10% and 20% adverse changes to key assumptions on the fair value of residential MSRs.

(in thousands)	December 31, 2021		December 31, 2020
Residential MSRs
Prepayment rate
Impact of 10% adverse change	$	(5,262)	$	(5,049)
Impact of 20% adverse change	$	(9,262)	$	(9,701)
Discount rate
Impact of 10% adverse change	$	(4,533)	$	(2,601)
Impact of 20% adverse change	$	(8,745)	$	(5,028)
Servicing expense
Impact of 10% adverse change	$	(2,125)	$	(1,469)
Impact of 20% adverse change	$	(4,251)	$	(2,938)