MORTGAGE LOAN SERVICING

9 Months Ended

Sep. 30, 2019

5.MORTGAGE LOAN SERVICING

The Company sells residential mortgages to government-sponsored entities and other parties. The Company retains no beneficial interests in these loans, but may retain the servicing rights of the loans sold. Mortgage loans serviced for others are not included in the accompanying unaudited interim Consolidated Balance Sheets. The risks inherent in mortgage servicing rights (“MSRs”) relate primarily to changes in prepayments that primarily result from shifts in mortgage interest rates. The unpaid principal balance of mortgage loans serviced for others was $1.87 billion and $1.99 billion as of September 30, 2019 and December 31, 2018, respectively.

The Company accounts for MSRs at fair value. The Company obtains valuations from independent third parties to determine the fair value of MSRs. Key assumptions used in the estimation of fair value include prepayment speeds, discount rates, default rates, cost to service, and contractual servicing fees. At September 30, 2019 and December 31, 2018, the following weighted average assumptions were used in the calculation of fair value of MSRs:


	September 30,		December 31,
	2019		2018
Prepayment speed	14.41	%	9.45	%
Discount rate	9.33		9.32
Default rate	2.56		2.06

The following summarizes changes to MSRs for the three and nine months ended September 30, 2019 and 2018:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
	(in thousands)

Balance, beginning of period	$	18,156	$	22,832	$	22,217	$	21,092
Additions		385		1,294		716		2,318
Changes in fair value due to:
Reductions from loans paid off during the period		(585)		(521)		(1,363)		(1,362)
Changes in valuation inputs or assumptions		(1,889)		143		(5,503)		1,700
Balance, end of period	$	16,067	$	23,748	$	16,067	$	23,748

Contractually specified servicing fees included in other mortgage banking income amounted to $1.3 million and $4.1 million for the three and nine months ended September 30, 2019 and $1.3 million and $4.0 million for the three and nine months ended September 30, 2018, respectively.