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Servicing Rights
 6 Months Ended
Jun. 30, 2020
Mortgage Servicing Rights [Abstract]  
Servicing Rights SERVICING RIGHTS
Mortgage Servicing Rights
Our portfolio of residential mortgage loans serviced for third parties was $3.37 billion and $3.38 billion as of June 30, 2020 and December 31, 2019, respectively. These loans are originated and sold to third parties on a non-recourse basis with servicing rights retained. The retained servicing rights were recorded as a servicing asset and are reported in other intangible assets. The associated amortization expense and any valuation allowance recognized were included as a reduction of mortgage income. Mortgage servicing rights are initially recorded at fair value and then carried at the lower of amortized cost or fair value.
Contractually specified mortgage servicing fees, late fees and ancillary fees earned for the three months ended June 30, 2020 and 2019 were $2.1 million and $2.0 million, respectively, and are reported in mortgage income. For the six months ended June 30, 2020 and 2019, contractually specified mortgage servicing fees, late fees, and ancillary fees earned were $4.3 million and $3.9 million, respectively.
The following table presents changes in the servicing asset during the three and six months ended June 30, 2020 and 2019:
Three months ended June 30Six months ended June 30
(Dollars in thousands)2020201920202019
Beginning balance$19,756  $20,647  $22,963  $21,396  
Servicing rights originated2,096  1,552  3,679  2,411  
Amortization(2,119) (1,567) (3,942) (3,014) 
Valuation allowance (increase) decrease(1,069) 33  (4,036) (128) 
Ending balance$18,664  $20,665  $18,664  $20,665  
The following table presents the activity in the servicing asset valuation allowance for the three and six months ended June 30, 2020 and 2019:
Three months ended June 30Six months ended June 30
(Dollars in thousands)2020201920202019
Beginning balance$3,189  $161  $222  $—  
Valuation allowance increase (decrease)1,069  (33) 4,036  128  
Ending balance$4,258  $128  $4,258  $128  
Mortgage servicing rights valuations are performed using a pooling methodology where loans with similar risk characteristics are grouped together and evaluated using discounted cash flows to estimate the present value of future earnings. Key economic assumptions used to value mortgage servicing rights were as follows:
June 30, 2020December 31, 2019
Discount rate - conventional fixed loans7.66 %8.92 %
Discount rate - all loans excluding conventional fixed loans8.66 %9.92 %
Weighted average constant prepayment rate20.19 %13.72 %
Weighted average cost to service a loan$87.30  $87.09  
The fair value of mortgage servicing rights is sensitive to changes in assumptions and is determined by estimating the present value of the asset’s future cash flows by utilizing discount rates, prepayment rates, and other inputs. The discount rate is based on the 10-year U.S. Treasury rate plus a risk premium of 700 basis points for conventional fixed loans and 800 basis points for all other loans. The prepayment rate is derived from the Public Securities Association Standard Prepayment model. Generally, as interest rates decline, mortgage loan prepayments accelerate due to increased refinance activity, which results in a decrease in the fair value and may result in the recognition of a valuation allowance. The average cost to service a loan is based on the number of loans serviced and the total cost to service the loans.