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12) Mortgage Servicing Rights

6 Months Ended

Jun. 30, 2020

The Company initially records these MSRs at fair value as discussed in Note 8.

After being initially recorded at fair value, MSRs backed by mortgage loans are accounted for using the amortization method. Amortization expense is included in other expenses on the consolidated statements of earnings. MSR amortization is determined by amortizing the MSR balance in proportion to, and over the period of the estimated future net servicing income of the underlying financial assets.

The Company periodically assesses MSRs for impairment. Impairment occurs when the current fair value of the MSR falls below the asset’s carrying value (carrying value is the amortized cost reduced by any related valuation allowance). If MSRs are impaired, the impairment is recognized in current-period earnings and the carrying value of the MSRs is adjusted through a valuation allowance.

Management periodically reviews the various loan strata to determine whether the value of the MSRs in a given stratum is impaired and likely to recover. When management deems recovery of the value to be unlikely in the foreseeable future, a write-down of the cost of the MSRs for that stratum to its estimated recoverable value is charged to the valuation allowance.

The following is a summary of the MSR activity for the periods presented.

	As of June 30 2020	As of December 31 2019
Amortized cost:
Balance before valuation allowance at beginning of year	$ 17,155,529	$ 20,016,822
MSR additions resulting from loan sales	9,488,179	4,194,502
Amortization (1)	(4,948,585)	(7,055,795)
Application of valuation allowance to write down MSRs with other than temporary impairment	-	-
Balance before valuation allowance at end of period	$ 21,695,123	$ 17,155,529

Valuation allowance for impairment of MSRs:
Balance at beginning of year	$ -	$ -
Additions	-	-
Application of valuation allowance to write down MSRs with other than temporary impairment	-	-
Balance at end of period	$ -	$ -

Mortgage servicing rights, net	$ 21,695,123	$ 17,155,529

Estimated fair value of MSRs at end of period	$ 22,921,824	$ 22,784,571

(1) Included in other expenses on the condensed consolidated statements of earnings

The following table summarizes the Company’s estimate of future amortization of its existing MSRs carried at amortized cost:

		Estimated MSR Amortization
2020		3,370,190
2021		2,535,104
2022		1,999,989
2023		1,608,753
2024		1,317,529
Thereafter		10,863,558
Total		$ 21,695,123

The Company collected the following contractual servicing fee income and late fee income as reported in other revenues on the condensed consolidated statement of earnings:

	Three Months Ended June 30		Six Months Ended June 30
	2020	2019	2020	2019
Contractual servicing fees	$ 1,929,565	$ 1,858,599	$ 3,714,509	$ 3,668,013
Late fees	71,704	87,291	169,512	178,890
Total	$ 2,001,269	$ 1,945,890	$ 3,884,021	$ 3,846,903

The following is a summary of the unpaid principal balances (“UPB”) of the servicing portfolio for the periods presented:

As of June 30
2020

As of December 31

2019

Servicing UPB

$ 3,430,482,161

$ 2,804,139,415

The following key assumptions were used in determining MSR value:

	Prepayment Speeds	Average Life (Years)	Discount Rate
June 30, 2020	18.90	4.57	9.51
December 31, 2019	15.30	5.27	9.51