Mortgage Banking Activities Mortgage Banking Activities

12 Months Ended

Dec. 31, 2021

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 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, 2021				December 31, 2020
	Unpaid Principal Balance/ Notional		Fair Value		Unpaid Principal Balance/ Notional		Fair Value
Residential mortgage loans held for sale	$	182,710	$	186,175	$	227,161	$	236,444
Residential mortgage loan commitments	171,412		6,167		380,637		20,435
Forward sales contracts	328,433		(47)		549,414		(4,563)
			$	192,295			$	252,316

No residential mortgage loans held for sale were 90 days or more past due or considered impaired as of December 31, 2021 or December 31, 2020. No credit losses were recognized on residential mortgage loans held for sale for the years ended December 31, 2021, 2020 and 2019.

Mortgage banking revenue was as follows (in thousands):


	Year Ended
	2021		2020		2019
Production revenue:
Net realized gains on sales of mortgage loans	$	76,282	$	107,847	$	39,730
Net change in unrealized gain on mortgage loans held for sale	(5,818)		6,697		672
Net change in the fair value of mortgage loan commitments	(14,268)		15,202		(145)
Net change in the fair value of forward sales contracts	4,516		(3,898)		2,463
Total mortgage production revenue	60,712		125,848		42,720
Servicing revenue	45,184		56,512		64,821
Total mortgage banking revenue	$	105,896	$	182,360	$	107,541

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.

Residential Mortgage Servicing

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.

The following represents a summary of mortgage servicing rights (Dollars in thousands):


	December 31,
	2021			2020			2019
Number of residential mortgage loans serviced for others	102,008			106,201			126,828
Outstanding principal balance of residential mortgage loans serviced for others	$	16,442,446		$	16,228,449		$	20,727,106
Weighted average interest rate	3.58		%	3.84		%	3.98		%
Remaining contractual term (in months)	281			280			289

Activity in capitalized mortgage servicing rights during the three years ended December 31, 2021 is as follows (in thousands):



Balance, December 31, 2018	$	259,254
Additions	35,128
Change in fair value due to loan runoff	(38,979)
Change in fair value due to market changes	(53,517)
Balance, December 31, 2019	201,886
Additions	31,209
Disposals	(10,801)
Change in fair value due to loan runoff	(41,598)
Change in fair value due to market changes	(79,524)
Balance, December 31, 2020	101,172
Additions	31,132
Acquisitions	28,018

Change in fair value due to loan runoff	(38,761)
Change in fair value due to market changes	41,637
Balance, December 31, 2021	$	163,198

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,
	2021	2020
Discount rate – risk-free rate plus a market premium	8.39%	9.14%
Prepayment rate - based upon loan interest rate, original term and loan type	12.11%	19.73%
Loan servicing costs – annually per loan based upon loan type:
Performing loans	$69 - $94	$69 - $94
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	1.32%	0.43%
Delinquency rate	2.05%	3.54%

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.