XML 90 R14.htm IDEA: XBRL DOCUMENT v2.4.1.9
Mortgage Banking Activities Mortgage Banking Activities (Notes)
 12 Months Ended
Dec. 31, 2014
Mortgage Banking [Abstract]  
Mortgage Banking Activities [Text Block]
(7) Mortgage Banking Activities

Residential Mortgage Loan Production

The Company originates, markets and services conventional and government-sponsored residential mortgage loans. Generally, conforming fixed rate residential mortgage loans are held for sale in the secondary market and non-conforming and adjustable-rate residential mortgage loans are held for investment. All residential mortgage loans originated for sale by the Company are carried at fair value based on sales commitments and market quotes. Changes in the fair value of mortgage loans held for sale are included in Other operating revenue – Mortgage banking revenue. Residential mortgage loans held for sale also includes the fair value of residential mortgage loan commitments and forward sale commitments which are considered derivative contracts that have not been designated as hedging instruments. The volume of mortgage loans originated for sale and secondary market prices are the primary drivers of originating and marketing revenue.

Residential mortgage loan commitments are generally outstanding for 60 to 90 days, which represents the typical period from commitment to originate a residential mortgage loan to when the closed loan is sold to an investor. Residential mortgage loan commitments are subject to both credit and interest rate risk. Credit risk is managed through underwriting policies and procedures, including collateral requirements, which are generally accepted by the secondary loan markets. Exposure to interest rate fluctuations is partially managed through forward sales of residential mortgage-backed securities and forward sales contracts. These latter contracts set the price for loans that will be delivered in the next 60 to 90 days.

The unpaid principal balance of residential mortgage loans held for sale, notional amounts of derivative contracts related to residential mortgage loan commitments and forward contract sales and their related fair values included in Mortgage loans held for sale on the Consolidated Balance Sheets were (in thousands):
 
 
December 31, 2014
 
December 31, 2013
 
 
Unpaid Principal Balance/
Notional
 
Fair Value
 
Unpaid Principal Balance/
Notional
 
Fair Value
Residential mortgage loans held for sale
 
$
291,537

 
$
298,212

 
$
192,266

 
$
193,584

Residential mortgage loan commitments
 
520,829

 
9,971

 
258,873

 
2,656

Forward sales contracts
 
701,066

 
(4,001
)
 
435,867

 
4,306

 
 
 

 
$
304,182

 
 

 
$
200,546



No residential mortgage loans held for sale were 90 days or more past due or considered impaired as of December 31, 2014 or December 31, 2013. No credit losses were recognized on residential mortgage loans held for sale for the years ended December 31, 2014, 2013 and 2012.

Mortgage banking revenue was as follows (in thousands):
 
 
Year Ended
 
 
2014
 
2013
 
2012
Production revenue:
 
 
 
 
 
 
Net realized gains on sales of mortgage loans
 
$
56,696

 
$
95,309

 
$
115,879

Net change in unrealized gain on mortgage loans held for sale
 
5,357

 
(10,899
)
 
4,720

Change in the fair value of mortgage loan commitments
 
7,315

 
(10,077
)
 
6,136

Change in the fair value of forward sales contracts
 
(8,307
)
 
5,212

 
2,382

Total production revenue
 
61,061

 
79,545

 
129,117

Servicing revenue
 
48,032

 
42,389

 
40,185

Total mortgage banking revenue
 
$
109,093

 
$
121,934

 
$
169,302



Mortgage production revenue includes gain (loss) on residential mortgage loans held for sale and changes in the fair value of derivative contracts not designated as hedging instruments related to residential mortgage loan commitments and forward sales contracts. Servicing revenue includes servicing fee income and late charges on loans serviced for others.

Residential Mortgage Servicing

The Company generally retains the right to service residential mortgage loans sold and may purchase mortgage servicing rights. The unpaid principal balance of loans serviced for others is the primary driver of servicing revenue.

The following represents a summary of mortgage servicing rights (Dollars in thousands):
 
 
December 31,
 
 
2014
 
2013
 
2012
Number of residential mortgage loans serviced for others
 
117,483

 
106,137

 
98,246

Outstanding principal balance of residential mortgage loans serviced for others
 
$
16,162,887

 
$
13,718,942

 
$
11,981,624

Weighted average interest rate
 
4.29
%
 
4.40
%
 
4.71
%
Remaining term (in months)
 
296

 
292

 
289




Activity in capitalized mortgage servicing rights during the three years ended December 31, 2014 is as follows (in thousands):
 
 
Purchased
 
Originated
 
Total
Balance, December 31, 2011
 
$
18,903

 
$
67,880

 
$
86,783

Additions, net
 
—

 
42,191

 
42,191

Change in fair value due to loan runoff
 
(4,164
)
 
(14,788
)
 
(18,952
)
Change in fair value due to market changes
 
(1,763
)
 
(7,447
)
 
(9,210
)
Balance, December 31, 2012
 
12,976

 
87,836

 
100,812

Additions, net
 
—

 
49,431

 
49,431

Change in fair value due to loan runoff
 
(3,029
)
 
(16,601
)
 
(19,630
)
Change in fair value due to market changes
 
5,988

 
16,732

 
22,720

Balance, December 31, 2013
 
15,935

 
137,398

 
153,333

Additions, net
 
—

 
54,413

 
54,413

Change in fair value due to loan runoff
 
(2,357
)
 
(16,968
)
 
(19,325
)
Change in fair value due to market changes
 
(2,464
)
 
(13,981
)
 
(16,445
)
Balance, December 31, 2014
 
$
11,114

 
$
160,862

 
$
171,976


Changes in the fair value of mortgage servicing rights due to market changes are included in Other operating revenue in the Consolidated Statements of Earnings. Changes in fair value due to loan runoff are included in Mortgage banking costs. 

There is no active market for trading in mortgage servicing rights after origination. Fair value is determined by discounting the projected net cash flows. Significant assumptions used to determine fair value considered to be significant unobservable inputs were as follows:

 
 
December 31,
 
 
2014
 
2013
Discount rate – risk-free rate plus a market premium
 
10.17%
 
10.21%
Prepayment rate – based upon loan interest rate, original term and loan type
 
7.70% - 30.44%
 
6.66% - 26.19%
Loan servicing costs – annually per loan based upon loan type:
 
 
 
 
Performing loans
 
$60 - $105
 
$60 - $105
Delinquent loans
 
$150 - $500
 
$150 - $500
Loans in foreclosure
 
$1,000 - $4,250
 
$1,000 - $4,250
Escrow earnings rate – indexed to rates paid on deposit accounts with comparable average life
 
1.77%
 
1.80%




Stratification of the residential mortgage loan servicing portfolio and outstanding principal of loans serviced for others by interest rate at December 31, 2014 follows (in thousands):
 
 
< 4.00%
 
4.00% - 4.99%
 
5.00% - 5.99%
 
> 5.99%
 
Total
Fair value
 
$
67,412

 
$
80,405

 
$
19,383

 
$
4,776

 
$
171,976

Outstanding principal of loans serviced for others
 
6,332,112

 
6,882,025

 
1,989,977

 
958,773

 
16,162,887

Weighted average prepayment rate1
 
7.70
%
 
8.58
%
 
14.50
%
 
30.44
%
 
10.26
%
1 
Annual prepayment estimates based upon loan interest rate, original term and loan type. Weighted average prepayment rate is determined by weighting the prepayment speed for each loan by its unpaid principal balance.

Changes in primary residential mortgage interest rates directly affect the prepayment speeds used in valuing our mortgage servicing rights. A separate third party model is used to estimate prepayment speeds based on interest rates, housing turnover rates, estimated loan curtailment, anticipated defaults and other relevant factors. The prepayment model is updated daily for changes in market conditions and adjusted to better correlate with actual performance of BOK Financial’s servicing portfolio.

The interest rate sensitivity of our mortgage servicing rights net of securities and derivative contracts held as an economic hedge is modeled over a range of +/- 50 basis points. At December 31, 2014, a 50 basis point increase in mortgage interest rates is expected to increase the fair value of our mortgage servicing rights, net of economic hedge by $4.7 million. A 50 basis point decrease in mortgage interest rates is expected to decrease the fair value of our mortgage servicing rights, net of economic hedge by $4.6 million. In the model, changes in the value of servicing rights due to changes in interest rates assume stable relationships between residential mortgage rates and prepayment speeds. Changes in market conditions can cause variations from these assumptions. These factors and others may cause changes in the value of our mortgage servicing rights to differ from our expectations.

The aging status of our mortgage loans serviced for others by investor at December 31, 2014 follows (in thousands):
 
 
 
 
Past Due
 
 
 
 
Current
 
30 to 59
Days
 
60 to 89
Days
 
90 Days or More
 
Total
FHLMC
 
$
5,289,078

 
$
37,881

 
$
9,418

 
$
33,837

 
$
5,370,214

FNMA
 
5,200,509

 
27,089

 
5,736

 
22,087

 
5,255,421

GNMA
 
4,920,064

 
132,680

 
34,602

 
13,594

 
5,100,940

Other
 
422,598

 
6,674

 
1,491

 
5,549

 
436,312

Total
 
$
15,832,249

 
$
204,324

 
$
51,247

 
$
75,067

 
$
16,162,887


The Company has off-balance sheet credit risk related to residential mortgage loans sold to U.S. government agencies with recourse prior to 2008 under various community development programs. These loans consist of first lien, fixed-rate residential mortgage loans underwritten to standards approved by the agencies including full documentation and originated under programs available only for owner-occupied properties. However, these loans have a higher risk of delinquency and loss given default than traditional residential mortgage loans. The Company no longer sells residential mortgage loans with recourse other than obligations under standard representations and warranties. The recourse obligation relates to loan performance for the life of the loan and the Company is obligated to repurchase the loan at the time of foreclosure for the unpaid principal balance plus unpaid interest. The principal balance of residential mortgage loans sold subject to recourse obligations totaled $180 million at December 31, 2014 and $191 million at December 31, 2013. At December 31, 2014, approximately 4% of the loans sold with recourse with an outstanding principal balance of $7.1 million were either delinquent more than 90 days, in bankruptcy or in foreclosure and 5% with an outstanding balance of $8.4 million were past due 30 to 89 days. A separate accrual for these off-balance sheet commitments is included in Other liabilities in the Consolidated Balance Sheets. The provision for credit losses on loans sold with recourse is included in Mortgage banking costs in the Consolidated Statements of Earnings.

The activity in the accrual for losses on loans sold with recourse included in Other liabilities in the Consolidated Balance Sheets is summarized as follows (in thousands):
 
Year Ended
 
2014
 
2013
 
2012
Beginning balance
$
9,562

 
$
13,158

 
$
18,683

Provision for recourse losses
354

 
517

 
(100
)
Loans charged off, net
(2,617
)
 
(4,113
)
 
(5,425
)
Ending balance
$
7,299

 
$
9,562

 
$
13,158



The Company also has off-balance sheet obligations to repurchase or provide indemnification for residential mortgage loans sold to government sponsored entities due to standard representations and warranties made under contractual agreements.The Company has established an accrual for credit losses related to potential loan repurchases under representations and warranties that is included in Other liabilities in the Consolidated Balance Sheets and in Mortgage banking costs in the Consolidated Statements of Earnings. For 2014, the Company has repurchased 41 loans from the agencies for $6.5 million and recognized $62 thousand of related losses. In addition, the Company has paid indemnification for 17 loans and recognized $613 thousand of related losses during 2014. 

A summary of unresolved deficiency requests from the agencies follows (in thousands, except for number of unresolved deficiency requests):
 
December 31,
 
2014
 
2013
Number of unresolved deficiency requests
186

 
578

Aggregate outstanding principal balance subject to unresolved deficiency requests
$
15,328

 
$
69,288

Unpaid principal balance subject to indemnification by the Company
4,047

 
3,200



The activity in the accruals for mortgage losses is summarized as follows (in thousands).
 
December 31,
 
2014
 
2013
Beginning balance
$
12,716

 
$
8,983

Provision for losses
7,200

 
6,221

Charge-offs, net
(8,048
)
 
(2,488
)
Ending balance
$
11,868

 
$
12,716