Annual report pursuant to Section 13 and 15(d)

Mortgage Servicing Rights

v3.21.1
Mortgage Servicing Rights
 12 Months Ended
Dec. 31, 2020
Transfers And Servicing [Abstract]  
Mortgage Servicing Rights

NOTE 7 - MORTGAGE SERVICING RIGHTS

The activity of mortgage servicing rights was as follows for the years ended December 31, 2020 and 2019:

 

 

 

2020

 

 

2019

 

Balance — beginning of year

 

$

418,402

 

 

$

511,852

 

MSRs originated and acquired through acquisitions

 

 

324,903

 

 

 

161,769

 

Changes in fair value:

 

 

 

 

 

 

 

 

Due to collection/realization of cash flows

 

 

(124,742

)

 

 

(83,821

)

Due to changes in valuation model inputs or assumptions

 

 

(171,565

)

 

 

(171,398

)

Balance — end of year

 

$

446,998

 

 

$

418,402

 

 

The following table presents the weighted average discount rate, prepayment speed and cost to service assumptions used to determine the fair value of MSRs as of December 31, 2020 and 2019:

 

 

 

2020

 

2019

Unobservable Input

 

Range (Weighted Average)

Discount rate

 

9.2% - 15.5% (10.0%)

 

9.2% - 15.5% (10.2%)

Prepayment rate

 

10.0% - 38.8% (18.2%)

 

8.9% - 30.0% (17.3%)

Cost to service (per loan)

 

$71.0 - $409.4 ($92.5)

 

$70.8 - $521.4 ($97.5)

 

At December 31, 2020 and 2019, the MSRs had a weighted average life of approximately 5.1 years and 4.9 years, respectively. 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 years ended December 31, 2020 and 2019:

 

 

 

2020

 

 

2019

 

Servicing fees from servicing portfolio

 

$

155,362

 

 

$

138,201

 

Late fees

 

 

5,229

 

 

 

5,967

 

Other ancillary servicing revenue

 

 

(354

)

 

 

(1,463

)

Total loan servicing and other fees

 

$

160,237

 

 

$

142,705

 

 

At December 31, 2020 and 2019, the unpaid principal balance of mortgage loans serviced totaled $60.8 billion and $50.6 billion, respectively. Conforming conventional loans serviced by the Company are sold to FNMA or FHLMC 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 FHA or partially guaranteed against loss by 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 deceases 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 December 31, 2020 and 2019, 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

 

December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage servicing rights

 

$

(36,117

)

 

$

(66,419

)

$

(18,638

)

 

$

(32,312

)

 

$

(10,334

)

 

$

(16,700

)

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage servicing rights

 

$

(31,329

)

 

$

(49,031

)

$

(23,682

)

 

$

(35,701

)

 

$

(16,679

)

 

$

(22,543

)