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Mortgage Banking Activities
 9 Months Ended
Sep. 30, 2015
Mortgage Banking [Abstract]  
Mortgage Banking Activities [Text Block]
(6) 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):
 
 
September 30, 2015
 
Dec. 31, 2014
 
September 30, 2014
 
 
Unpaid Principal Balance/
Notional
 
Fair Value
 
Unpaid Principal Balance/
Notional
 
Fair Value
 
Unpaid
Principal
 Balance/
Notional
 
Fair Value
Residential mortgage loans held for sale
 
$
336,974

 
$
348,400

 
$
291,537

 
$
298,212

 
$
360,126

 
$
366,183

Residential mortgage loan commitments
 
742,742

 
18,161

 
627,505

 
9,971

 
638,925

 
8,480

Forward sales contracts
 
1,073,343

 
(9,147
)
 
701,066

 
(4,001
)
 
790,131

 
(1,410
)
 
 
 

 
$
357,414

 
 

 
$
304,182

 
 

 
$
373,253



No residential mortgage loans held for sale were 90 days or more past due or considered impaired as of September 30, 2015, December 31, 2014 or September 30, 2014. No credit losses were recognized on residential mortgage loans held for sale for the nine month periods ended September 30, 2015 and 2014.

Mortgage banking revenue was as follows (in thousands):
 
 
Three Months Ended
Sept. 30,
 
Nine Months Ended
Sept. 30,
 
 
2015
 
2014
 
2015
 
2014
Production revenue:
 
 
 
 
 
 
 
 
Net realized gains on sale of mortgage loans
 
$
18,968

 
$
17,100

 
$
60,075

 
$
39,025

Net change in unrealized gain on mortgage loans held for sale
 
6,666

 
(3,110
)
 
4,751

 
4,739

Net change in the fair value of mortgage loan commitments
 
9,838

 
(5,136
)
 
8,190

 
5,824

Net change in the fair value of forward sales contracts
 
(16,755
)
 
5,839

 
(5,146
)
 
(5,716
)
Total production revenue
 
18,717

 
14,693

 
67,870

 
43,872

Servicing revenue
 
14,453

 
12,121

 
41,466

 
35,116

Total mortgage banking revenue
 
$
33,170

 
$
26,814

 
$
109,336

 
$
78,988



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

Mortgage servicing rights may be originated or purchased. Both originated and purchased mortgage servicing rights are initially recognized at fair value. The Company has elected to carry all mortgage servicing rights at fair value. Changes in the fair value are recognized in earnings as they occur. 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):
 
 
September 30,
2015
 
Dec. 31,
2014
 
September 30,
2014
Number of residential mortgage loans serviced for others
 
128,828

 
117,483

 
114,493

Outstanding principal balance of residential mortgage loans serviced for others
 
$
18,928,726

 
$
16,162,887

 
$
15,499,653

Weighted average interest rate
 
4.15
%
 
4.29
%
 
4.33
%
Remaining term (in months)
 
300

 
296

 
295



Activity in capitalized mortgage servicing rights during the three months ended September 30, 2015 was as follows (in thousands):
 
 
Purchased
 
Originated
 
Total
Balance, June 30, 2015
 
$
10,730

 
$
187,964

 
$
198,694

Additions, net
 
—

 
19,993

 
19,993

Change in fair value due to loan runoff
 
(661
)
 
(6,220
)
 
(6,881
)
Change in fair value due to market changes
 
(656
)
 
(11,101
)
 
(11,757
)
Balance, Sept. 30, 2015
 
$
9,413

 
$
190,636

 
$
200,049


Activity in capitalized mortgage servicing rights during the nine months ended September 30, 2015 was as follows (in thousands):
 
 
Purchased
 
Originated
 
Total
Balance, Dec. 31, 2014
 
$
11,114

 
$
160,862

 
$
171,976

Additions, net
 
—

 
62,375

 
62,375

Change in fair value due to loan runoff
 
(2,171
)
 
(19,862
)
 
(22,033
)
Change in fair value due to market changes
 
470

 
(12,739
)
 
(12,269
)
Balance, Sept. 30, 2015
 
$
9,413

 
$
190,636

 
$
200,049


Activity in capitalized mortgage servicing rights during the three months ended September 30, 2014 was as follows (in thousands):
 
 
Purchased
 
Originated
 
Total
Balance, June 30, 2014
 
$
13,082

 
$
142,658

 
$
155,740

Additions, net
 
—

 
17,367

 
17,367

Change in fair value due to loan runoff
 
(624
)
 
(4,478
)
 
(5,102
)
Change in fair value due to market changes
 
821

 
4,460

 
5,281

Balance, Sept. 30, 2014
 
$
13,279

 
$
160,007

 
$
173,286


Activity in capitalized mortgage servicing rights during the nine months ended September 30, 2014 was as follows (in thousands):
 
 
Purchased
 
Originated
 
Total
Balance, Dec. 31, 2013
 
$
15,935

 
$
137,398

 
$
153,333

Additions, net
 
—

 
39,183

 
39,183

Change in fair value due to loan runoff
 
(1,737
)
 
(11,869
)
 
(13,606
)
Change in fair value due to market changes
 
(919
)
 
(4,705
)
 
(5,624
)
Balance, Sept. 30, 2014
 
$
13,279

 
$
160,007

 
$
173,286



Changes in the fair value of mortgage servicing rights 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. Changes in fair value due to market changes are reported separately. Changes in fair value due to market changes during the period relate to assets held at the reporting date.

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 based on significant unobservable inputs were as follows:

 
 
September 30,
2015
 
Dec. 31,
2014
 
September 30,
2014
Discount rate – risk-free rate plus a market premium
 
10.12%
 
10.17%
 
10.17%
Loan servicing costs – annually per loan based upon loan type:
 
 
 
 
 
 
    Performing loans
 
$63-$105
 
$60 - $105
 
$60 - $105
    Delinquent loans
 
$150 - $500
 
$150 - $500
 
$150 - $500
    Loans in foreclosure
 
$650 - $4,250
 
$1,000 - $4,250
 
$1000 - $4,250
Escrow earnings rate – indexed to rates paid on deposit accounts with comparable average life
 
1.40%
 
1.77%
 
1.95%


The Company is exposed to interest rate risk as benchmark residential mortgage interest rates directly affect the prepayment speeds used in valuing our mortgage servicing rights, which is partially managed through forward sales of residential mortgage-backed securities and forward sales contracts. 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.

Stratification of the residential mortgage loan servicing portfolio and outstanding principal of loans serviced for others by interest rate at September 30, 2015 follows (in thousands):
 
 
< 4.00%
 
4.00% - 4.99%

 
5.00% - 5.99%

 
> 5.99%
 
Total
Fair value
 
$
93,382

 
$
86,546

 
$
15,883

 
$
4,238

 
$
200,049

Outstanding principal of loans serviced for others
 
$
8,785,402

 
$
7,652,269

 
$
1,673,815

 
$
817,240

 
$
18,928,726

Weighted average prepayment rate1
 
7.51
%
 
8.74
%
 
13.57
%
 
26.99
%
 
9.39
%
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.

The interest rate sensitivity of our mortgage servicing rights and securities and derivative contracts held as an economic hedge is modeled over a range of +/- 50 basis points. At September 30, 2015, 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 $488 thousand. A 50 basis point decrease in mortgage interest rates is expected to increase the fair value of our mortgage servicing rights, net of economic hedge by $716 thousand. 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 September 30, 2015 follows (in thousands):
 
 
 
 
Past Due
 
 
 
 
Current
 
30 to 59
Days
 
60 to 89
Days
 
90 Days or More
 
Total
FHLMC
 
$
6,177,382

 
$
36,398

 
$
7,426

 
$
26,517

 
$
6,247,723

FNMA
 
6,428,098

 
32,897

 
7,009

 
19,297

 
6,487,301

GNMA
 
5,483,012

 
145,747

 
38,984

 
15,816

 
5,683,559

Other
 
500,024

 
5,102

 
953

 
4,064

 
510,143

Total
 
$
18,588,516

 
$
220,144

 
$
54,372

 
$
65,694

 
$
18,928,726


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 $162 million at September 30, 2015, $180 million at December 31, 2014 and $175 million at September 30, 2014. A separate accrual for these off-balance sheet commitments is included in Other liabilities in the Consolidated Balance Sheets. At September 30, 2015, approximately 3% of the loans sold with recourse with an outstanding principal balance of $5.5 million were either delinquent more than 90 days, in bankruptcy or in foreclosure and 4% with an outstanding balance of $7.0 million were past due 30 to 89 days. 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):
 
Three Months Ended
September 30,
 
Nine Months Ended
Sept. 30,
 
2015
 
2014
 
2015
 
2014
Beginning balance
$
6,691

 
$
8,690

 
$
7,299

 
$
9,562

Provision for recourse losses
81

 
93

 
211

 
260

Loans charged off, net
(506
)
 
(461
)
 
(1,244
)
 
(1,500
)
Ending balance
$
6,266

 
$
8,322

 
$
6,266

 
$
8,322



The Company also has 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 and to service loans in accordance with investor guidelines. The Company has established accruals for losses related to these obligations that are included in Other liabilities in the Consolidated Balance Sheets and in Mortgage banking costs in the Consolidated Statements of Earnings. 

The Company repurchased 10 loans from the agencies for $2.1 million during the third quarter of 2015. There were no indemnifications on loans paid during the third quarter of 2015. Losses recognized on indemnifications and repurchases were insignificant.

A summary of unresolved deficiency requests from the agencies follows (in thousands, except for number of unresolved deficiency requests):
 
September 30,
2015
 
September 30,
2014
Number of unresolved deficiency requests
194

 
184

Aggregate outstanding principal balance subject to unresolved deficiency requests
$
14,237

 
$
15,548

Unpaid principal balance subject to indemnification by the Company
4,604

 
4,792



The activity in the accruals for mortgage losses is summarized as follows (in thousands).
 
Three Months Ended
Sept. 30,
 
Nine Months Ended
Sept. 30,
 
2015
 
2014
 
2015
 
2014
Beginning balance
$
8,908

 
$
12,119

 
$
11,868

 
$
12,716

Provision for losses
(52
)
 
1,122

 
(3,056
)
 
2,475

Charge-offs, net
(1,262
)
 
(3,486
)
 
(1,218
)
 
(5,436
)
Ending balance
$
7,594


$
9,755


$
7,594


$
9,755