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3) Loans Held For Sale

12 Months Ended

Dec. 31, 2020

3) Loans Held for Sale

The Company has elected the fair value option for loans held for sale as disclosed in Note 1. Interest income is recorded based on the contractual terms of the loan and in accordance with the Company’s policy on mortgage loans held for investment and is included in mortgage fee income on the consolidated statement of earnings. There are three loans with an aggregate unpaid principal balance of $208,636 that are 90 or more days past due and on a nonaccrual status as of December 31, 2020. See Note 17 of the Notes to Consolidated Financial Statements for additional disclosures regarding loans held for sale.

The following is a summary of the aggregate fair value and the aggregate unpaid principal balance of loans held for sale for the periods presented:

	As of December 31 2020	As of December 31 2019

Aggregate fair value	$ 422,772,418	$ 213,457,632
Unpaid principal balance	406,407,323	206,417,122
Unrealized gain	16,365,095	7,040,510

Mortgage Fee Income

Mortgage fee income consists of origination fees, processing fees, interest income and certain other income related to the origination and sale of mortgage loans held for sale.

Major categories of mortgage fee income for loans held for sale for the years ended December 31, were as follows:

	2020	2019
Loan fees	$ 43,432,532	$ 28,660,966
Interest income	10,628,581	6,978,930
Secondary gains	231,759,342	93,581,956
Change in fair value of loan commitments	7,637,377	899,417
Change in fair value of loans held for sale	10,413,492	2,498,097
Provision for loan loss reserve	(4,938,214)	(643,284)
Mortgage fee income	$ 298,933,110	$ 131,976,082

Loan Loss Reserve

When a repurchase demand corresponding to a mortgage loan previously held for sale and sold to a third-party investor is received from a third-party investor, the relevant data is reviewed and captured so that an estimated future loss can be calculated. The key factors that are used in the estimated loss calculation are as follows: (i) lien position, (ii) payment status, (iii) claim type, (iv) unpaid principal balance, (v) interest rate, and (vi) validity of the demand. Other data is captured and is useful for management purposes; the actual estimated loss is generally based on these key factors. The Company conducts its own review upon the receipt of a repurchase demand. In many instances, the Company is able to resolve the issues relating to the repurchase demand by the third-party investor without having to make any payments to the investor.

The following is a summary of the loan loss reserve which is included in other liabilities and accrued expenses:

	December 31
	2020	2019
Balance, beginning of period	$ 4,046,288	$ 3,604,869
Provision for current loan originations (1)	4,938,214	643,284
Additional provision for loan loss reserve	16,506,030	-
Charge-offs, net of recaptured amounts	(4,906,914)	(201,865)
Balance, at December 31	$ 20,583,618	$ 4,046,288

(1) Included in Mortgage fee income

The Company maintains reserves for estimated losses on current production volumes. For the year ended December 31, 2020, $4,938,214 in reserves were added at a rate of 8.9 basis points per loan, the equivalent of $890 per $1,000,000 in loans originated. This is an increase over the year ended December 31, 2019, when $643,284 in reserves were added at a rate of 2.5 basis points per loan originated, the equivalent of $250 per $1,000,000 in loans originated. The Company also increased its loan loss reserve for the year ended December 31, 2020 by an additional $16,506,030 to account for changes in estimates specific to settlements of loan losses. See Note 10 for additional information regarding mortgage loan loss settlements. The economic impact of COVID-19 and subsequent government action has increased the potential for losses due to early payoff penalties and potential for losses due to increased delinquency. The unique nature of these current events creates significant difficulty for forecasting potential future losses. The Company will continue to monitor data and economic conditions in order to maintain adequate loss reserves on current production. Thus, the Company believes that the final loan loss reserve as of December 31, 2020, represents its best estimate for adequate loss reserves on loans sold.