Note 9—Mortgage Servicing Rights and Mortgage Servicing Liabilties

Mortgage Servicing Rights Carried at Fair Value:

The activity in MSRs carried at fair value is as follows:


	Year ended December 31,
	2019		2018		2017
	(in thousands)
Balance at beginning of year	$	2,820,612	$	638,010	$	515,925
Reclassification of mortgage servicing rights previously accounted for under the amortization method pursuant to adoption of the fair value method of accounting		—		1,482,426		—
Balance after reclassification		2,820,612		2,120,436		515,925
Additions:
Resulting from loan sales		884,876		591,757		24,471
Purchases		227,445		237,803		183,850
		1,112,321		829,560		208,321
Change in fair value due to:
Changes in inputs used in valuation model (1)		(550,666)		174,458		(4,771)
Other changes in fair value (2)		(455,477)		(303,842)		(81,465)
Total change in fair value		(1,006,143)		(129,384)		(86,236)
Balance at end of year	$	2,926,790	$	2,820,612	$	638,010

	December 31,
	2019		2018
		(in thousands)
Fair value of mortgage servicing rights pledged to secure Assets sold under agreements to repurchase and Notes payable	$	2,920,603	$	2,807,333

(1)

Principally reflects changes in discount rate and prepayment speed inputs, primarily due to changes in market interest rates, and changes in expected borrower performance and servicer losses given default.

(2)

Represents changes due to realization of cash flows.

Mortgage Servicing Rights Carried at Lower of Amortized Cost or Fair Value:

The activity in MSRs carried at the lower of amortized cost or fair value is summarized below:


		Year ended December 31,
		2018		2017
	( in thousands)
Amortized cost:
Balance at beginning of year		$	1,583,378	$	1,206,694
Transfer of mortgage servicing rights to mortgage servicing rights carried at fair value pursuant to adoption of the fair value method of accounting			(1,583,378)		—
Balance after reclassification			—		1,206,694
Mortgage servicing rights resulting from mortgage loan sales			—		556,630
Amortization			—		(179,946)
Balance at end of year			—		1,583,378

Valuation allowance:
Balance at beginning of year			(101,800)		(94,947)
Reduction resulting from transfer of mortgage servicing rights to mortgage servicing rights carried at fair value pursuant to adoption of the fair value method of accounting			101,800		—
Balance after reclassification			—		(94,947)
Increase in valuation allowance			—		(6,853)
Balance at end of year			—		(101,800)
Mortgage servicing rights, net at end of year		$	—	$	1,481,578
Fair value of mortgage servicing rights at:
Beginning of year				$	1,112,302
End of year				$	1,482,426

Mortgage Servicing Liabilities Carried at Fair Value:

The activity in MSLs carried at fair value is summarized below:


	Year ended December 31,
	2019		2018		2017
	(in thousands)
Balance at beginning of year	$	8,681	$	14,120	$	15,192
Mortgage servicing liabilities resulting from loan sales		37,988		7,601		17,229
Changes in fair value due to:
Changes in valuation inputs used in valuation model (1)		8,377		10,787		6,526
Other changes in fair value (2)		(25,906)		(23,827)		(24,827)
Total change in fair value		(17,529)		(13,040)		(18,301)
Balance at end of year	$	29,140	$	8,681	$	14,120

(1)

Principally reflects changes in expected borrower performance and servicer losses given default.

(2)

Represents changes due to realization of cash flows.

Servicing fees relating to MSRs and MSLs are recorded in Net loan servicing fees—Loan servicing fees—From non-affiliates on the consolidated statements of income; late charges and other ancillary fees relating to MSRs and MSLs are recorded in Net loan servicing fees—Loan servicing fees—Other on the Company’s consolidated statements of income. Such amounts are summarized below:


	Year ended December 31,
	2019		2018		2017
	(in thousands)
Contractual servicing fees	$	730,165	$	585,101	$	475,848
Other fees:
Late charges		43,350		27,940		25,097
Other		14,258		6,276		4,603
	$	787,773	$	619,317	$	505,548