MORTGAGE LOAN SERVICING

6 Months Ended

Jun. 30, 2020

MORTGAGE LOAN SERVICING

MORTGAGE LOAN SERVICING

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 $2.27 billion and $1.83 billion as of June 30, 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 June 30, 2020 and December 31, 2019, the following weighted average assumptions were used in the calculation of fair value of MSRs:

	June 30,		December 31,
	2020		2019
Prepayment speed	17.00	%	12.43	%
Discount rate	9.31		9.34
Default rate	1.98		2.61

The following summarizes changes to MSRs for the three and six months ended June 30, 2020 and 2019:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
	(in thousands)
Balance, beginning of period	$	13,207	$	20,231	$	17,150	$	22,217
Additions		4,031		166		4,475		331
Changes in fair value due to:
Reductions from loans paid off during the period		(1,114)		(459)		(1,690)		(778)
Changes in valuation inputs or assumptions		3		(1,782)		(3,808)		(3,614)
Balance, end of period	$	16,127	$	18,156	$	16,127	$	18,156

Contractually specified servicing fees included in other mortgage banking income amounted to $1.3 million and $2.6 million for the three and six months ended June 30, 2020, respectively, and $1.4 million and $2.7 million for the three and six months ended June 30, 2019, respectively.