MORTGAGE LOAN SERVICING

3 Months Ended

Mar. 31, 2020

5.MORTGAGE LOAN SERVICING

The Company sells residential mortgages to government-sponsored entities and other parties. The Company retains no beneficial interests in these loans, but may retain the servicing rights of the loans sold. Mortgage loans serviced for others are not included in the accompanying unaudited interim Consolidated Balance Sheets. The risks inherent in mortgage servicing rights (“MSRs”) relate primarily to changes in prepayments that primarily result from shifts in mortgage interest rates. The unpaid principal balance of mortgage loans serviced for others was $1.82 billion and $1.83 billion as of March 31, 2020 and December 31, 2019, respectively.

The Company accounts for MSRs at fair value. The Company obtains valuations from independent third parties to determine the fair value of MSRs. Key assumptions used in the estimation of fair value include prepayment speeds, discount rates, default rates, cost to service, and contractual servicing fees. At March 31, 2020 and December 31, 2019, the following weighted average assumptions were used in the calculation of fair value of MSRs:


	March 31,		December 31,
	2020		2019
Prepayment speed	16.09	%	12.43	%
Discount rate	9.34		9.34
Default rate	2.34		2.61

The following summarizes changes to MSRs for the three months ended March 31, 2020 and 2019:


	Three Months Ended March 31,
	2020		2019
	(in thousands)

Balance, beginning of period	$	17,150	$	22,217
Additions		444		165
Changes in fair value due to:
Reductions from loans paid off during the period		(576)		(319)
Changes in valuation inputs or assumptions		(3,811)		(1,832)
Balance, end of period	$	13,207	$	20,231

Contractually specified servicing fees included in other mortgage banking income amounted to $1.3 million for the three months ended March 31, 2020 and 2019, respectively.