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Mortgage Servicing Rights
 9 Months Ended
Sep. 30, 2022
Transfers and Servicing [Abstract]  
Mortgage Servicing Rights MORTGAGE SERVICING RIGHTS
Mortgage servicing rights are recognized on the condensed consolidated balance sheets when loans are sold and the associated servicing rights are retained. The Company has elected the fair value option for all current classes of its MSRs. The Company determined its classes of MSRs based on how the Company manages risk. The Company's MSRs are measured at fair value, which is determined using a valuation model that calculates the present value of estimated future net servicing cash flows. The model includes estimates of prepayment speeds, discount rate, cost to service, float earnings, contractual servicing fee income, and ancillary income and late fees, among others. These estimates are supported by market and economic data collected from various external sources.
The unpaid principal balance of mortgage loans serviced for others approximated $306.0 billion and $319.8 billion at September 30, 2022 and December 31, 2021, respectively. Conforming conventional loans serviced by the Company have previously been sold to Fannie Mae and Freddie Mac on a non-recourse basis, whereby credit losses are generally the responsibility of Fannie Mae and Freddie Mac, and not the Company. Loans serviced for Ginnie Mae are insured by the FHA, guaranteed by the VA, or insured by other applicable government programs. While the above guarantees and insurance are the responsibility of those parties, the Company is still subject to potential losses related to its servicing of these loans. Those estimated losses are incorporated into the valuation of MSRs.
The following table summarizes changes in the MSR assets for the three and nine months ended September 30, 2022 and 2021 (in thousands):
For the three months ended September 30,For the nine months ended September 30,
2022202120222021
Fair value, beginning of period$3,736,359 $2,662,556 $3,314,952 1,760,304 
Capitalization of MSRs682,510 663,246 1,740,625 1,843,861 
MSR sales(359,014)(269,925)(1,231,810)(269,925)
Changes in fair value:
Due to changes in valuation inputs or assumptions
373,232 61,477 940,668 221,244 
Due to collection/realization of cash flows/other(127,401)(217,044)(458,749)(655,174)
Fair value, end of period$4,305,686 $2,900,310 $4,305,686 $2,900,310 

The following is a summary of the components of change in fair value of servicing rights as reported in the condensed consolidated statements of operations (in thousands):
For the three months ended September 30,For the nine months ended September 30,
2022202120222021
Changes in fair value:
Due to changes in valuation inputs and assumptions$373,232 $61,477 $940,668 $221,244 
Due to collection/realization of cash flows and other(127,401)(217,044)(458,749)(655,174)
Reserves and transaction costs on sales of servicing rights(9,051)(14,895)(47,007)(14,895)
Changes in fair value of mortgage servicing rights$236,780 $(170,462)$434,912 $(448,825)

During the nine months ended September 30, 2022 and 2021, the Company sold MSRs on loans with an aggregate UPB of approximately $101.3 billion and $22.7 billion, respectively, for proceeds of approximately $1.2 billion and $269.9 million, respectively. In connection with the sales of these MSRs, the Company recorded $47.0 million and $14.9 million, respectively, for its estimated obligation for protection provisions granted to the buyer and transaction costs, which is reflected as part of the change in fair value of MSRs in the condensed consolidated statements of operations.
The following table summarizes the loan servicing income recognized during the three and nine months ended September 30, 2022 and 2021, respectively (in thousands):
For the three months ended September 30,For the nine months ended September 30,
2022202120222021
Contractual servicing fees$193,715 $173,133 $567,040 $439,386 
Late, ancillary and other fees3,066 1,562 7,807 4,376 
Loan servicing income$196,781 $174,695 $574,847 $443,762 
The key unobservable inputs used in determining the fair value of the Company’s MSRs were as follows at September 30, 2022 and December 31, 2021, respectively:
 September 30,
2022		December 31,
2021
RangeWeighted AverageRangeWeighted Average
Discount rates9.5 %—15.0 %10.1 %9.0 %—14.5 %9.6 %
Annual prepayment speeds6.7 %—13.7 %7.8 %8.3 %—45.4 %10.5 %
Cost of servicing$75 —$106 $80 $74 —$162 $81 
The hypothetical effect of adverse changes in these key assumptions would result in a decrease in fair values as follows at September 30, 2022 and December 31, 2021, respectively, (in thousands):
 September 30,
2022		December 31,
2021
Discount rate:
+ 10% adverse change – effect on value$(159,984)$(107,992)
+ 20% adverse change – effect on value(307,114)(208,567)
Prepayment speeds:
+ 10% adverse change – effect on value$(133,988)$(138,807)
+ 20% adverse change – effect on value(259,876)(267,964)
Cost of servicing:
+ 10% adverse change – effect on value$(38,795)$(37,370)
+ 20% adverse change – effect on value(77,590)(74,741)
These sensitivities are hypothetical and should be used with caution. As the table demonstrates, the Company’s methodology for estimating the fair value of MSRs is highly sensitive to changes in assumptions. For example, actual prepayment experience may differ, and any difference may have a material effect on MSR fair value. Changes in fair value resulting from changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in this table, the effect of a variation in a particular assumption of the fair value of the MSRs is calculated without changing any other assumption; in reality, changes in one factor may be associated with changes in another (for example, decreases in market interest rates may indicate higher prepayments; however, this may be partially offset by lower prepayments due to other factors such as a borrower’s diminished opportunity to refinance), which may magnify or counteract the sensitivities. Thus, any measurement of MSR fair value is limited by the conditions existing and assumptions made as of a particular point in time. Those assumptions may not be appropriate if they are applied to a different point in time.