Residential Mortgage Servicing Rights

12 Months Ended

Dec. 31, 2020

Transfers and Servicing [Abstract]

Residential Mortgage Servicing Rights

Residential Mortgage Servicing Rights 

The Company measures its mortgage servicing rights at fair value with changes in fair value reported in residential mortgage banking revenue, net. The following table presents the changes in the Company's residential mortgage servicing rights for the years ended December 31, 2020, 2019 and 2018: 

(in thousands)	2020		2019		2018
Balance, beginning of period	$	115,010	$	169,025	$	153,151
Additions for new MSR capitalized	51,000		25,169		29,069
Sale of MSR assets	—		(34,401)		—
Changes in fair value:
Changes due to collection/realization of expected cash flows over time	(19,680)		(25,408)		(24,533)
Changes due to valuation inputs or assumptions (1)	(53,423)		(19,375)		11,338
Balance, end of period	$	92,907	$	115,010	$	169,025

(1) The change in valuation inputs and assumptions principally reflect changes in discount rates and prepayment speeds, which are primarily affected by changes in interest rates.

Information related to the serviced loan portfolio as of December 31, 2020, 2019 and 2018 is as follows: 

(dollars in thousands)	December 31, 2020			December 31, 2019			December 31, 2018
Balance of loans serviced for others	$	13,026,720		$	12,276,943		$	15,978,885
MSR as a percentage of serviced loans	0.71		%	0.94		%	1.06		%

In 2019, Umpqua closed on the sale of $34.4 million in residential mortgage servicing rights for $3.4 billion of residential mortgage loans serviced for others.

The amount of contractually specified servicing fees, late fees and ancillary fees earned, recorded in residential mortgage banking revenue, net, was $35.7 million, $42.2 million, and $42.8 million for the years ended December 31, 2020, 2019 and 2018, respectively. 

Key assumptions used in measuring the fair value of MSR as of December 31, 2020, 2019 and 2018 were as follows:

	December 31, 2020		December 31, 2019		December 31, 2018
Constant prepayment rate	18.48	%	13.33	%	12.95	%
Discount rate	9.72	%	9.75	%	9.70	%
Weighted average life (years)	4.9		6.0		6.2

A sensitivity analysis of the current fair value to changes in discount and prepayment speed assumptions as of December 31, 2020 and 2019 is as follows:

	December 31, 2020		December 31, 2019
Constant prepayment rate
Effect on fair value of a 10% adverse change	$	(5,611)	$	(5,410)
Effect on fair value of a 20% adverse change	$	(10,833)	$	(10,403)
Discount rate
Effect on fair value of a 100 basis point adverse change	$	(3,339)	$	(4,366)
Effect on fair value of a 200 basis point adverse change	$	(6,448)	$	(8,418)

The sensitivity analysis presents the hypothetical effect on fair value of the MSR, due to the change in assumptions. The effect of such hypothetical change in assumptions generally cannot be extrapolated because the relationship of the change in an assumption to the change in fair value is not linear. Additionally, in the analysis, the impact of an adverse change in one assumption is calculated independent of any impact on other assumptions. In reality, changes in one assumption may change another assumption.