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Mortgage Banking Activities
 9 Months Ended
Sep. 30, 2017
Mortgage Banking [Abstract]  
Mortgage Banking Activities [Text Block]
Mortgage Banking Activities

Residential Mortgage Loan Production

The Company originates, markets and services conventional and government-sponsored residential mortgage loans. Generally, conforming fixed rate residential mortgage loans are held for sale in the secondary market and non-conforming and adjustable-rate residential mortgage loans are retained for investment. Residential mortgage loans originated for sale by the Company are carried at fair value based on sales commitments and market quotes. Changes in the fair value of mortgage loans held for sale are included in Other operating revenue – Mortgage banking revenue. Residential mortgage loans held for sale also includes the fair value of residential mortgage loan commitments and forward sale commitments which are considered derivative contracts that have not been designated as hedging instruments for accounting purposes. The volume of mortgage loans originated for sale and secondary market prices are the primary drivers of originating and marketing revenue.

Residential mortgage loan commitments are generally outstanding for 60 to 90 days, which represents the typical period from commitment to originate a residential mortgage loan to when the closed loan is sold to an investor. Residential mortgage loan commitments are subject to both credit and interest rate risk. Credit risk is managed through underwriting policies and procedures, including collateral requirements, which are generally accepted by the secondary loan markets. Exposure to interest rate fluctuations is partially managed through forward sales of residential mortgage-backed securities and forward sales contracts. These latter contracts set the price for loans that will be delivered in the next 60 to 90 days.

The unpaid principal balance of residential mortgage loans held for sale, notional amounts of derivative contracts related to residential mortgage loan commitments and forward contract sales and their related fair values included in Mortgage loans held for sale on the Consolidated Balance Sheets were (in thousands):
 
 
September 30, 2017
 
December 31, 2016
 
September 30, 2016
 
 
Unpaid Principal Balance/
Notional
 
Fair Value
 
Unpaid Principal Balance/
Notional
 
Fair Value
 
Unpaid
Principal
 Balance/
Notional
 
Fair Value
Residential mortgage loans held for sale
 
$
261,868

 
$
265,783

 
$
286,414

 
$
286,971

 
$
422,523

 
$
433,040

Residential mortgage loan commitments
 
334,337

 
9,066

 
318,359

 
9,733

 
630,804

 
18,598

Forward sales contracts
 
524,878

 
794

 
569,543

 
5,193

 
929,907

 
(4,046
)
 
 
 

 
$
275,643

 
 

 
$
301,897

 
 

 
$
447,592



No residential mortgage loans held for sale were 90 days or more past due or considered impaired as of September 30, 2017, December 31, 2016 or September 30, 2016. No credit losses were recognized on residential mortgage loans held for sale for the three and nine month periods ended September 30, 2017 and 2016.
Mortgage banking revenue was as follows (in thousands):
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2017
 
2016
 
2017
 
2016
Production revenue:
 
 
 
 
 
 
 
 
Net realized gains on sale of mortgage loans
 
$
12,041

 
$
23,110

 
$
32,443

 
$
47,424

Net change in unrealized gain on mortgage loans held for sale
 
(1,492
)
 
(2,518
)
 
3,335

 
4,649

Net change in the fair value of mortgage loan commitments
 
(1,927
)
 
(6,901
)
 
(667
)
 
10,464

Net change in the fair value of forward sales contracts
 
(293
)
 
8,267

 
(4,399
)
 
(4,846
)
Total production revenue
 
8,329

 
21,958

 
30,712

 
57,691

Servicing revenue
 
16,561

 
16,558

 
49,645

 
47,809

Total mortgage banking revenue
 
$
24,890

 
$
38,516

 
$
80,357

 
$
105,500



Production revenue includes gain (loss) on residential mortgage loans held for sale and changes in the fair value of derivative contracts not designated as hedging instruments for accounting purposes related to residential mortgage loan commitments and forward sales contracts. Servicing revenue includes servicing fee income and late charges on loans serviced for others.

Residential Mortgage Servicing

Mortgage servicing rights may be originated or purchased. Both originated and purchased mortgage servicing rights are initially recognized at fair value. The Company has elected to carry all mortgage servicing rights at fair value. Changes in the fair value are recognized in earnings as they occur. The unpaid principal balance of loans serviced for others is the primary driver of servicing revenue.

The following represents a summary of mortgage servicing rights (Dollars in thousands):
 
 
September 30,
2017
 
December 31, 2016
 
September 30,
2016
Number of residential mortgage loans serviced for others
 
137,359

 
139,340

 
139,587

Outstanding principal balance of residential mortgage loans serviced for others
 
$
22,063,121

 
$
21,997,568

 
$
21,851,536

Weighted average interest rate
 
3.95
%
 
3.97
%
 
4.01
%
Remaining term (in months)
 
298

 
301

 
302



Activity in capitalized mortgage servicing rights during the three months ended September 30, 2017 was as follows (in thousands):
 
 
Purchased
 
Originated
 
Total
Balance, June 30, 2017
 
$
7,995

 
$
237,244

 
$
245,239

Additions, net
 
—

 
9,925

 
9,925

Change in fair value due to principal payments
 
(470
)
 
(8,197
)
 
(8,667
)
Change in fair value due to market assumption changes
 
303

 
(942
)
 
(639
)
Balance, September 30, 2017
 
$
7,828

 
$
238,030

 
$
245,858

 
 
Purchased
 
Originated
 
Total
Balance, December 31, 2016
 
$
8,909

 
$
238,164

 
$
247,073

Additions, net
 
—

 
29,439

 
29,439

Change in fair value due to principal payments
 
(1,443
)
 
(23,485
)
 
(24,928
)
Change in fair value due to market assumption changes
 
362

 
(6,088
)
 
(5,726
)
Balance, September 30, 2017
 
$
7,828

 
$
238,030

 
$
245,858

Activity in capitalized mortgage servicing rights during the three months ended September 30, 2016 was as follows (in thousands):
 
 
Purchased
 
Originated
 
Total
Balance, June 30, 2016
 
$
4,067

 
$
186,680

 
$
190,747

Additions, net
 
—

 
21,990

 
21,990

Change in fair value due to scheduled payments and full-balance payoffs
 
(753
)
 
(10,690
)
 
(11,443
)
Change in fair value due to market assumption changes
 
251

 
2,076

 
2,327

Balance, September 30, 2016
 
$
3,565

 
$
200,056

 
$
203,621


 
 
Purchased
 
Originated
 
Total
Balance, December 31, 2015
 
$
9,911

 
$
208,694

 
$
218,605

Additions, net
 
—

 
56,345

 
56,345

Change in fair value due to scheduled payments and full-balance payoffs
 
(2,109
)
 
(27,276
)
 
(29,385
)
Change in fair value due to market assumption changes
 
(4,237
)
 
(37,707
)
 
(41,944
)
Balance, September 30, 2016
 
$
3,565

 
$
200,056

 
$
203,621



Changes in the fair value of mortgage servicing rights are included in Other operating revenue in the Consolidated Statements of Earnings. Changes in fair value due to actual loan payments are included in Mortgage banking costs. Changes in fair value due to market assumption changes are reported separately. Changes in fair value due to market assumption changes during the period relate to assets held at the reporting date.

There is no active market for trading in mortgage servicing rights after origination. Fair value is determined by discounting the projected net cash flows. Significant assumptions used to determine fair value based on significant unobservable inputs were as follows:
 
 
September 30,
2017
 
December 31, 2016
 
September 30,
2016
Discount rate – risk-free rate plus a market premium
 
9.84%
 
10.08%
 
10.08%
Prepayment rate - based upon loan interest rate, original term and loan type
 
8.71%-15.43%
 
8.98%-16.91%
 
9.16%-47.15%
Loan servicing costs – annually per loan based upon loan type:
 
 
 
 
 
 
Performing loans
 
$65-$120
 
$63 - $120
 
$63 - $120
Delinquent loans
 
$150-$500
 
$150 - $500
 
$150 - $500
Loans in foreclosure
 
$1,000-$4,250
 
$650 - $4,250
 
$650 - $4,250
Escrow earnings rate – indexed to rates paid on deposit accounts with comparable average life
 
2.00%
 
1.98%
 
1.18%
Primary/secondary mortgage rate spread
 
105 bps
 
105 bps
 
115 bps


Changes in primary residential mortgage interest rates directly affect the prepayment speeds used in valuing our mortgage servicing rights. A separate third party model is used to estimate prepayment speeds based on interest rates, housing turnover rates, estimated loan curtailment, anticipated defaults and other relevant factors. The prepayment model is updated periodically for changes in market conditions and adjusted to better correlate with actual performance of BOK Financial’s servicing portfolio.

The aging status of our mortgage loans serviced for others by investor at September 30, 2017 follows (in thousands):
 
 
 
 
Past Due
 
 
 
 
Current
 
30 to 59
Days
 
60 to 89
Days
 
90 Days or More
 
Total
FHLMC
 
$
8,021,016

 
$
78,542

 
$
13,100

 
$
26,171

 
$
8,138,829

FNMA
 
6,635,428

 
76,065

 
10,398

 
20,596

 
6,742,487

GNMA
 
6,376,127

 
215,506

 
59,659

 
20,925

 
6,672,217

Other
 
502,768

 
3,492

 
1,167

 
2,161

 
509,588

Total
 
$
21,535,339

 
$
373,605

 
$
84,324

 
$
69,853

 
$
22,063,121