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12) Mortgage Servicing Rights

9 Months Ended

Sep. 30, 2019

The Company initially records these MSRs at fair value as discussed in Note 8.

After being initially recorded at fair value, MSRs backed by mortgage loans are accounted for using the amortization method. Amortization expense is included in other expenses on the consolidated statements of earnings. MSR amortization is determined by amortizing the MSR balance in proportion to, and over the period of the estimated future net servicing income of the underlying financial assets.

The Company periodically assesses MSRs for impairment. Impairment occurs when the current fair value of the MSR falls below the asset’s carrying value (carrying value is the amortized cost reduced by any related valuation allowance). If MSRs are impaired, the impairment is recognized in current-period earnings and the carrying value of the MSRs is adjusted through a valuation allowance.

Management periodically reviews the various loan strata to determine whether the value of the MSRs in a given stratum is impaired and likely to recover. When management deems recovery of the value to be unlikely in the foreseeable future, a write-down of the cost of the MSRs for that stratum to its estimated recoverable value is charged to the valuation allowance.

The following is a summary of the MSR activity for the periods presented.

	As of September 30 2019	As of December 31 2018
Amortized cost:
Balance before valuation allowance at beginning of year	$ 20,016,822	$ 21,376,937
MSR additions resulting from loan sales	2,015,872	3,922,816
Amortization (1)	(5,081,570)	(5,282,931)
Application of valuation allowance to write down MSRs with other than temporary impairment	-	-
Balance before valuation allowance at end of period	$ 16,951,124	$ 20,016,822

Valuation allowance for impairment of MSRs:
Balance at beginning of year	$ -	$ -
Additions	-	-
Application of valuation allowance to write down MSRs with other than temporary impairment	-	-
Balance at end of period	$ -	$ -

Mortgage servicing rights, net	$ 16,951,124	$ 20,016,822

Estimated fair value of MSRs at end of period	$ 20,216,363	$ 28,885,316

(1) Included in other expenses on the condensed consolidated statements of earnings

The following table summarizes the Company’s estimate of future amortization of its existing MSRs carried at amortized cost:

		Estimated MSR Amortization
2019		1,447,366
2020		5,452,834
2021		3,769,028
2022		3,003,819
2023		2,412,176
Thereafter		865,901
Total		$ 16,951,124

The Company collected the following contractual servicing fee income and late fee income as reported in other revenues on the condensed consolidated statement of earnings:

	Three Months Ended September 30		Nine Months Ended September 30
	2019	2018	2019	2018
Contractual servicing fees	$ 1,765,957	$ 1,905,887	$ 5,433,970	$ 5,670,346
Late fees	82,547	106,354	261,437	334,452
Total	$ 1,848,504	$ 2,012,241	$ 5,695,407	$ 6,004,798

The following is a summary of the unpaid principal balances (“UPB”) of the servicing portfolio for the periods presented:

	As of September 30 2019		As of December 31 2018
Servicing UPB	$ 2,754,157,857		$ 2,941,231,563

The following key assumptions were used in determining MSR value:

	Prepayment Speeds	Average Life (Years)	Discount Rate
September 30, 2019	18.00	4.58	9.51
December 31, 2018	11.70	6.33	9.51