Commercial mortgage banking

The Commercial Mortgage Banking segment, which operates out of OMHHF, became a discontinued operation during second quarter of 2016. See Note 3 for further details.

Loan Origination Fees

OMHHF recognizes origination fees and other direct origination costs when it enters into a rate lock commitment with the borrower. The origination fees and other direct origination costs are recognized when OMHHF enters into a commitment to sell loans to third parties. In accordance with Housing and Urban Development ("HUD") guidelines, OMHHF will, with HUD's approval and for certain loan programs, apply the premium income towards the payment of prepayment costs that customers will incur on their prior mortgage. These costs are netted with revenues from premium income that are otherwise earned from these loan refinancings or modifications. Prepayment costs recorded as contra-revenue against premium income was $6.5 million for the year ended December 31, 2016 ($25.7 million in 2015 and $9.8 million in 2014).

Funding Commitments

OMHHF provides its clients with commitments to fund FHA-insured permanent or constructions loans. Upon providing these commitments to fund, OMHHF enters into TBA sale contracts directly or indirectly with counterparties to offset its exposures related to these funding commitments. See Note 5, Fair value measurements, for more information.

Loans Held For Sale

OMHHF advances funds from its own cash reserves in addition to obtaining financing through warehouse facilities in order to fund initial loan closing and subsequent construction loan draws. Prior to the GNMA securitization of a loan, a loan held for sale is recorded on the consolidated balance sheet. Loans held for sale are recorded at fair value through earnings.

Escrows Held in Trust

Custodial escrow accounts relating to loans serviced by OMHHF totaled $nil as of December 31, 2016 ($421.5 million as of December 31, 2015). These amounts are not included on the consolidated balance sheets as such amounts are not OMHHF’s assets. Certain cash deposits at financial institutions exceeded the FDIC-insured limits or other institutionally provided insurance. The combined uninsured balance with relation to escrow accounts as of December 31, 2016 was $nil. OMHHF places these deposits with major financial institutions where it believes the risk is minimal and that meet or exceed GNMA required credit ratings.

The total unpaid principal balance of loans the Company was servicing for various institutional investors as of December 31, 2016 and 2015 was as follows:



(Expressed in thousands)
	2016		2015
Unpaid principal balance of loans	$	—	$	3,974,292

Mortgage Servicing Rights

OMHHF purchases commitments or originates mortgage loans that are sold and securitized into GNMA mortgage backed securities. OMHHF retains the servicing responsibilities for the loans securitized and recognizes either a MSR asset or a MSR liability for that servicing contract. OMHHF receives monthly servicing fees equal to a percentage of the outstanding principal balance of the loans being serviced.

OMHHF estimates the initial fair value of the servicing rights based on the present value of future net servicing income, adjusted for factors such as discount rate and prepayment. OMHHF uses the amortization method for subsequent measurement, subject to annual impairment. See Note 5, Fair value measurements, for more information.

The fair value of the servicing rights on the loan portfolio was $nil and $41.8 million as of December 31, 2016 and 2015, respectively (carrying value of $nil and $28.2 million as of December 31, 2016 and 2015, respectively). The following tables summarize the changes in carrying value of MSRs for the years ended December 31, 2016 and 2015:



(Expressed in thousands)
	For the Years Ended December 31,
	2016			2015
Balance at beginning of year	$	28,168		$	30,140
Originations ⁽¹⁾	2,575			6,569
Purchases	478			799
Disposals ⁽¹⁾	(1,753		)	(8,613		)
Sale of MSRs	(28,182		)	—
Amortization expense	(1,286		)	(727		)
Balance at end of year	$	—		$	28,168


(1)	Includes refinancings.

The Company receives fees during the course of servicing the mortgage loans. The fees for the years ended December 31, 2016, 2015 and 2014 were as follows:



(Expressed in thousands)
	For the Years Ended December 31,
	2016		2015		2014
Servicing fees	$	3,249	$	5,848	$	5,552
Ancillary fees	162		310		328
Total MSR fees	$	3,411	$	6,158	$	5,880