Quarterly report pursuant to Section 13 or 15(d)

MORTGAGE SERVICING RIGHTS

v3.23.3
MORTGAGE SERVICING RIGHTS
 9 Months Ended
Sep. 30, 2023
Transfers and Servicing [Abstract]  
MORTGAGE SERVICING RIGHTS MORTGAGE SERVICING RIGHTS
The activity of mortgage servicing rights was as follows:
Three Months Ended September 30, Nine Months Ended
September 30,
2023 2022 2023 2022
Balance — beginning of period $ 1,184,503  $ 1,030,310  $ 1,139,539  $ 675,340 
MSRs originated 51,733  57,477  123,678  206,772 
Changes in fair value:
Due to collection/realization of cash flows (16,127) (19,659) (43,187) (70,380)
Due to changes in valuation model inputs or assumptions 38,204  61,423  38,283  317,819 
Balance — end of period $ 1,258,313  $ 1,129,551  $ 1,258,313  $ 1,129,551 
The following table presents the weighted average discount rate, prepayment speed and cost to service assumptions used to determine the fair value of MSRs:
September 30, 2023 December 31, 2022
Unobservable Input Range (Weighted Average)
Discount rate
9.6% - 15.5% (10.8%)
9.6% - 15.7% (10.6%)
Prepayment rate
6.3% - 28.0% (7.4%)
6.6% - 28.6% (7.5%)
Cost to service (per loan)
$71.8 - $305.2 ($94.4)
$66.7 - $330.4 ($92.0)
At September 30, 2023 and December 31, 2022, the MSRs had a weighted average life of approximately 8.5 years. See Note 2 for additional information regarding the valuation of MSRs.
Actual revenue generated from servicing activities included contractually specified servicing fees, as well as late fees and other ancillary servicing revenue, which were recorded within loan servicing and other fees as follows for the three and nine months ended September 30, 2023 and 2022:
Three Months Ended September 30, Nine Months Ended
September 30,
2023 2022 2023 2022
Servicing fees from servicing portfolio $ 60,992  $ 56,410  $ 179,382  $ 161,342 
Late fees 1,729  1,486  5,016  4,369 
Other ancillary servicing revenue and fees (780) (249) (2,159) (292)
Total loan servicing and other fees $ 61,941  $ 57,647  $ 182,239  $ 165,419 
At September 30, 2023 and December 31, 2022, the UPB of mortgage loans serviced totaled $83.7 billion and $78.9 billion, respectively. Conforming conventional loans serviced by the Company are sold to the Federal National Mortgage Association ("FNMA" or "Fannie Mae") or the Federal Home Loan Mortgage Corporation ("FHLMC" or "Freddie Mac") programs on a nonrecourse basis, whereby foreclosure losses are generally the responsibility of FNMA and FHLMC and not the Company. Similarly, certain loans serviced by the Company are secured through GNMA programs, whereby the Company is insured against loss by the Federal Housing Association ("FHA") or partially guaranteed against loss by the Department of Veterans Affairs ("VA").
The key assumptions used to estimate the fair value of MSRs are prepayment speeds, the discount rate and costs to service. Increases in prepayment speeds generally have an adverse effect on the value of MSRs as the underlying loans prepay faster. In a declining interest rate environment, the fair value of MSRs generally decreases as prepayments increase and therefore, the estimated life of the MSRs and related cash flows decrease. Decreases in prepayment speeds generally have a positive effect on the value of MSRs as the underlying loans prepay less frequently. In a rising interest rate environment, the fair value of MSRs generally increases as prepayments decrease and therefore, the estimated life of the MSRs and related cash flows increase. Increases in the discount rate generally have an adverse effect on the value of the MSRs. The discount rate is risk adjusted for key factors such as uncertainty in the mortgage banking industry due to its reliance on external influences (interest rates, regulatory changes, etc.), premium for market liquidity, and credit risk. A higher discount rate would indicate higher uncertainty of the future cash flows. Conversely, decreases in the discount rate generally have a positive effect on the value of the MSRs. Increases in the costs to service generally have an adverse effect on the value of the MSRs as an increase in costs to service would reduce the Company’s future net cash inflows from servicing a loan. Conversely, decreases in the costs to service generally have a positive effect on the value of the MSRs. MSR uncertainties are hypothetical and do not always have a direct correlation with each assumption. Changes in one assumption may result in changes to another assumption, which might magnify or counteract the uncertainties.
The following table illustrates the impact of adverse changes on the prepayment speeds, discount rate and cost to service at two different data points at September 30, 2023 and December 31, 2022, respectively:
Prepayment Speeds Discount Rate Cost to Service (per loan)
10% Adverse
Change		 20% Adverse
Change		 10% Adverse
Change		 20% Adverse
Change		 10% Adverse
Change		 20% Adverse
Change
September 30, 2023
Mortgage servicing rights $ (38,165) $ (74,836) $ (53,571) $ (103,720) $ (11,965) $ (24,189)
December 31, 2022
Mortgage servicing rights $ (36,298) $ (70,878) $ (50,392) $ (96,848) $ (11,880) $ (24,162)