6.	MORTGAGE BANKING ACTIVITIES

Mortgage loans serviced for others, which are not reported in United Community’s assets, totaled $1.1 billion at December 31, 2014 and 2013. Mortgage banking income is comprised of gains recognized on the sale of loans and changes in fair value of mortgage banking derivatives.

Mortgage loans serviced for others are not reported as assets. The principal balance of these loans at year end are as follows:

	2014		2013
Mortgage loan portfolios serviced for:
FHLMC	$	821,609	$	827,146
FNMA		259,463		283,340

Escrow balances are maintained at the FHLB in connection with serviced loans totaling $1.0 million and $1.3 million at year-end 2014 and 2013.

Activity for capitalized mortgage servicing rights, included in other assets, was as follows:

	2014			2013			2012
	(Dollars in thousands)
Balance, beginning of year	$	5,941		$	6,186		$	6,375
Originations		1,281			1,898			2,395
Amortized to expense		(1,687	)		(2,143	)		(2,584	)
Balance, end of year		5,535			5,941			6,186
Less valuation allowance		(58	)		—			(680	)
Net balance	$	5,477		$	5,941		$	5,506

Fair value of mortgage servicing rights was $9.0 million, $10.2 million and $6.8 million at December 31, 2014, 2013, and 2012, respectively.

Activity in the valuation allowance for mortgage servicing rights was as follows:

	2014			2013			2012
	(Dollars in thousands)
Balance, beginning of year	$	—		$	(680	)	$	(1,785	)
Impairment charges		(60	)		—			(1,179	)
Recoveries		2			680			2,284
Balance, end of year	$	(58	)	$	—		$	(680	)

Key economic assumptions used in measuring the value of mortgage servicing rights at December 31, 2014 and 2013 were as follows:

	2014			2013
Weighted average prepayment rate		219 PSA			182 PSA
Weighted average life (in years)		3.61			3.94
Weighted average discount rate		8	%		8	%

At year-end 2014, the Company had approximately $22.7 million of interest rate lock commitments and $51.5 million of forward commitments for the future delivery of residential mortgage loans, including construcion perm loans that are held in available for sale. At year-end 2013, the Company had approximately $15.6 million of interest rate lock commitments and $17.5 million of forward commitments for the future delivery of residential mortgage loans. The fair value of these mortgage banking derivatives was not material at year end 2014 or 2013.

Amounts held in custodial accounts for investors amounted to $14.5 million and $15.0 million at December 31, 2014 and 2013, respectively.

During 2014, Home Savings received requests for reimbursements from Freddie Mac and Fannie Mae, both of whom in the normal course purchase loans originated by Home Savings, for the purpose of making them whole on certain loans sold in the secondary market. These sold loans had certain identified weaknesses such that, in the opinion of management, a settlement to the investor is required. For the twelve months ended December 31, 2014, Home Savings incurred a recovery of expenses of $374,000 associated with such repurchases. Home Savings has included in other liabilities a reserve for future make-whole settlements aggregating $554,000 at December 31, 2014. For the twelve months ended December 31, 2013, Home Savings incurred expenses of $2.0 million associated with such repurchases. Home Savings has included in other liabilities a reserve for future make-whole settlements aggregating $1.2 million at December 31, 2013. For the twelve months ended December 31, 2012, Home Savings incurred expenses of $734,000 associated with such repurchases as a reduction in reserves. Management believes this reserve is adequate given the historical losses incurred to date and the probability that future losses may occur.