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12) Mortgage Servicing Rights

9 Months Ended

Sep. 30, 2020

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 MSRsfor 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 2020	As of December 31 2019
Amortized cost:
Balance before valuation allowance at beginning of year	$ 17,155,529	$ 20,016,822
MSR additions resulting from loan sales	19,400,262	4,194,502
Amortization (1)	(8,168,315)	(7,055,795)
Application of valuation allowance to write down MSRs with other than temporary impairment	-	-
Balance before valuation allowance at end of period	$ 28,387,476	$ 17,155,529

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	$ 28,387,476	$ 17,155,529

Estimated fair value of MSRs at end of period	$ 30,288,406	$ 22,784,571

(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
2020		4,926,285
2021		3,690,972
2022		3,094,986
2023		2,609,308
2024		2,213,796
Thereafter		11,852,129
Total		$ 28,387,476

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

	Three Months Ended September 30		Nine Months Ended September 30
	2020	2019	2020	2019
Contractual servicing fees	$ 2,340,546	$ 1,765,957	$ 6,055,055	$ 5,433,970
Late fees	69,314	82,547	238,826	261,437
Total	$ 2,409,860	$ 1,848,504	$ 6,293,881	$ 5,695,407

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

	As of September 30 2020		As of December 31 2019
Servicing UPB	$ 4,215,559,388		$ 2,804,139,415

The following key assumptions were used in determining MSR value:

	Prepayment Speeds	Average Life (Years)	Discount Rate
September 30, 2020	16.70	5.06	9.5
December 31, 2019	15.30	5.27	9.51