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 held for investment. 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):



	December 31, 2018					December 31, 2017
	Unpaid Principal Balance/ Notional		Fair Value			Unpaid Principal Balance/ Notional		Fair Value
Residential mortgage loans held for sale	$	145,057	$	146,971		$	212,525	$	215,113
Residential mortgage loan commitments	160,848		5,378			222,919		6,523
Forward sales contracts	274,000		(3,128		)	380,159		(258		)
			$	149,221				$	221,378

No residential mortgage loans held for sale were 90 days or more past due or considered impaired as of December 31, 2018 or December 31, 2017. No credit losses were recognized on residential mortgage loans held for sale for the years ended December 31, 2018, 2017 and 2016.

Mortgage banking revenue was as follows (in thousands):



	Year Ended
	2018			2017			2016
Production revenue:
Net realized gains on sales of mortgage loans	$	36,379		$	45,128		$	68,947
Net change in unrealized gain on mortgage loans held for sale	(674		)	2,031			(5,311		)
Net change in the fair value of mortgage loan commitments	(1,145		)	(3,210		)	1,599
Net change in the fair value of forward sales contracts	(2,870		)	(5,451		)	4,393
Total mortgage production revenue	31,690			38,498			69,628
Servicing revenue	66,097			66,221			64,286
Total mortgage banking revenue	$	97,787		$	104,719		$	133,914

Mortgage 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 related to residential mortgage loan commitments and forward sales contracts. Servicing revenue includes servicing fee income and late charges on loans serviced for others.

The Company generally retains the right to service residential mortgage loans sold and may purchase mortgage servicing rights. The unpaid principal balance of loans serviced for others is the primary driver of servicing revenue.



	December 31,
	2018			2017			2016
Number of residential mortgage loans serviced for others	132,463,000			136,528,000			139,340,000
Outstanding principal balance of residential mortgage loans serviced for others	$	21,658,335		$	22,046,632		$	21,997,568
Weighted average interest rate	3.99		%	3.94		%	3.97		%
Remaining contractual term (in months)	293			297			301



Balance, December 31, 2015	$	218,605
Additions, net	71,405
Change in fair value due to loan runoff	(40,744		)
Change in fair value due to market changes	(2,193		)
Balance, December 31, 2016	247,073
Additions, net	39,149
Change in fair value due to loan runoff	(33,527		)
Change in fair value due to market changes	172
Balance, December 31, 2017	252,867
Additions, net	35,247
Change in fair value due to loan runoff	(33,528		)
Change in fair value due to market changes	4,668
Balance, December 31, 2018	$	259,254

Changes in the fair value of mortgage servicing rights due to market changes are included in Other operating revenue in the Consolidated Statements of Earnings. Changes in fair value due to loan runoff are included in Mortgage banking costs.

Mortgage servicing rights are not traded in active markets. Fair value is determined by discounting the projected net cash flows. Significant assumptions used to determine fair value considered to be significant unobservable inputs were as follows:



	December 31,
	2018	2017
Discount rate – risk-free rate plus a market premium	9.90%	9.84%
Prepayment rate - based upon loan interest rate, original term and loan type	8.05% - 15.74%	8.72%-15.16%
Loan servicing costs – annually per loan based upon loan type:
Performing loans	$67 - $93	$65 - $88
Delinquent loans	$150 - $500	$150 - $500
Loans in foreclosure	$1,000 - $4,000	$1,000 - $4,000
Primary/secondary mortgage rate spread	105 bps	105 bps
Escrow earnings rate – indexed to rates paid on deposit accounts with comparable average life	2.57%	2.24%

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.



			Past Due
	Current		30 to 59 Days		60 to 89 Days		90 Days or More		Total
FHLMC	$	7,798,790	$	58,271	$	11,139	$	25,239	$	7,893,439
FNMA	6,458,561		63,321		12,413		20,858		6,555,153
GNMA	6,568,459		200,747		56,024		15,996		6,841,226
Other	362,268		4,297		81		1,871		368,517
Total	$	21,188,078	$	326,636	$	79,657	$	63,964	$	21,658,335