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Mortgage Banking Activities
 3 Months Ended
Mar. 31, 2016
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 retained for investment. 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):
 
 
March 31, 2016
 
Dec. 31, 2015
 
March 31, 2015
 
 
Unpaid Principal Balance/
Notional
 
Fair Value
 
Unpaid Principal Balance/
Notional
 
Fair Value
 
Unpaid
Principal
 Balance/
Notional
 
Fair Value
Residential mortgage loans held for sale
 
$
309,040

 
$
318,191

 
$
293,637

 
$
299,505

 
$
491,762

 
$
501,888

Residential mortgage loan commitments
 
902,986

 
20,170

 
601,147

 
8,134

 
824,036

 
17,500

Forward sales contracts
 
1,012,041

 
(6,321
)
 
884,710

 
800

 
1,200,769

 
(6,192
)
 
 
 

 
$
332,040

 
 

 
$
308,439

 
 

 
$
513,196



No residential mortgage loans held for sale were 90 days or more past due or considered impaired as of March 31, 2016, December 31, 2015 or March 31, 2015. No credit losses were recognized on residential mortgage loans held for sale for the three month periods ended March 31, 2016 and 2015.
Mortgage banking revenue was as follows (in thousands):
 
 
Three Months Ended
March 31,
 
 
2016
 
2015
Production revenue:
 
 
 
 
Net realized gains on sale of mortgage loans
 
$
10,779

 
$
17,251

Net change in unrealized gain on mortgage loans held for sale
 
3,283

 
3,451

Net change in the fair value of mortgage loan commitments
 
12,036

 
7,529

Net change in the fair value of forward sales contracts
 
(7,121
)
 
(2,191
)
Total production revenue
 
18,977

 
26,040

Servicing revenue
 
15,453

 
13,280

Total mortgage banking revenue
 
$
34,430

 
$
39,320



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):
 
 
March 31,
2016
 
Dec. 31,
2015
 
March 31,
2015
Number of residential mortgage loans serviced for others
 
134,040

 
131,859

 
120,653

Outstanding principal balance of residential mortgage loans serviced for others
 
$
20,294,662

 
$
19,678,226

 
$
16,937,128

Weighted average interest rate
 
4.10
%
 
4.12
%
 
4.24
%
Remaining term (in months)
 
300

 
300

 
297



Activity in capitalized mortgage servicing rights during the three months ended March 31, 2016 was as follows (in thousands):
 
 
Purchased
 
Originated
 
Total
Balance, Dec. 31, 2015
 
$
9,911

 
$
208,694

 
$
218,605

Additions, net
 
—

 
13,582

 
13,582

Change in fair value due to loan runoff
 
(626
)
 
(7,518
)
 
(8,144
)
Change in fair value due to market changes
 
(3,336
)
 
(24,652
)
 
(27,988
)
Balance, March 31, 2016
 
$
5,949

 
$
190,106

 
$
196,055

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

 
$
160,862

 
$
171,976

Additions, net
 
—

 
19,150

 
19,150

Change in fair value due to loan runoff
 
(781
)
 
(6,772
)
 
(7,553
)
Change in fair value due to market changes
 
(740
)
 
(7,782
)
 
(8,522
)
Balance, March 31, 2015
 
$
9,593

 
$
165,458

 
$
175,051

 

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:

 
 
March 31,
2016
 
Dec. 31,
2015
 
March 31,
2015
Discount rate – risk-free rate plus a market premium
 
10.11%
 
10.11%
 
10.15%
Loan servicing costs – annually per loan based upon loan type:
 
 
 
 
 
 
    Performing loans
 
$63-$120
 
$63 - $105
 
$60 - $105
    Delinquent loans
 
$150 - $500
 
$150 - $500
 
$150 - $500
    Loans in foreclosure
 
$650 - $4,250
 
$650 - $4,250
 
$1000 - $4,250
Escrow earnings rate – indexed to rates paid on deposit accounts with comparable average life
 
1.19%
 
1.73%
 
1.54%
Primary/secondary mortgage rate spread
 
120 bps
 
130 bps
 
138 bps


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 March 31, 2016 follows (in thousands):
 
 
< 4.00%
 
4.00% - 4.99%

 
5.00% - 5.99%

 
> 5.99%
 
Total
Fair value
 
$
98,157

 
$
85,587

 
$
8,969

 
$
3,342

 
$
196,055

Outstanding principal of loans serviced for others
 
$
9,938,179

 
$
8,107,804

 
$
1,393,590

 
$
855,089

 
$
20,294,662

Weighted average prepayment rate1
 
8.88
%
 
9.95
%
 
23.48
%
 
35.21
%
 
11.42
%
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 is modeled over a range of +/- 50 basis points. At March 31, 2016, a 50 basis point decrease in mortgage interest rates is expected to decrease the fair value of our mortgage servicing rights by $36.4 million. A 50 basis point increase in mortgage interest rates is expected to increase the fair value of our mortgage servicing rights by $27.4 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 March 31, 2016 follows (in thousands):
 
 
 
 
Past Due
 
 
 
 
Current
 
30 to 59
Days
 
60 to 89
Days
 
90 Days or More
 
Total
FHLMC
 
$
6,767,400

 
$
34,920

 
$
7,482

 
$
25,224

 
$
6,835,026

FNMA
 
6,835,689

 
29,996

 
5,252

 
17,303

 
6,888,240

GNMA
 
5,851,935

 
109,046

 
33,308

 
15,338

 
6,009,627

Other
 
555,737

 
3,587

 
475

 
1,970

 
561,769

Total
 
$
20,010,761

 
$
177,549

 
$
46,517

 
$
59,835

 
$
20,294,662

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 $153 million at March 31, 2016, $155 million at December 31, 2015 and $174 million at March 31, 2015. A separate accrual for these off-balance sheet commitments is included in Other liabilities in the Consolidated Balance Sheets. At March 31, 2016, approximately 3 percent of the loans sold with recourse with an outstanding principal balance of $4.0 million were either delinquent more than 90 days, in bankruptcy or in foreclosure and 4 percent with an outstanding balance of $5.8 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
March 31,
 
2016
 
2015
Beginning balance
$
4,649

 
$
7,299

Provision for recourse losses
146

 
170

Loans charged off, net
(352
)
 
(448
)
Ending balance
$
4,443

 
$
7,021



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 3 loans from the agencies for $508 thousand during the first quarter of 2016. There was one indemnification on loans paid during the first quarter of 2016. 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):
 
March 31,
2016
 
March 31,
2015
Number of unresolved deficiency requests
220

 
213

Aggregate outstanding principal balance subject to unresolved deficiency requests
$
20,292

 
$
17,979

Unpaid principal balance subject to indemnification by the Company
4,668

 
4,212



The activity in the accruals for mortgage losses is summarized as follows (in thousands).
 
Three Months Ended
March 31,
 
2016
 
2015
Beginning balance
$
7,732

 
$
11,868

Provision for losses
1,350

 
(788
)
Charge-offs, net
(953
)
 
60

Ending balance
$
8,129


$
11,140