SERVICING RIGHTS

The Company retains MSRs from certain of its sales of residential mortgage loans. MSRs on residential mortgage loans are reported at fair value. Income earned by the Company on its MSRs is derived primarily from contractually specified mortgage servicing fees and late fees, net of curtailment costs and third party subservicing costs. The Company retains servicing rights in connection with its SBA loan operations, which are measured using the amortization method.

The following table presents a composition of total income (loss) from servicing rights, which is reported in Loan Servicing Income (Loss) in the Consolidated Statements of Operations, on a consolidated operations basis, for the periods indicated:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
	(In thousands)
Servicing fees for sold loans with servicing retained	$	4,521		$	6,286		$	15,352		$	16,372
Losses on the fair value and runoff of servicing rights	(3,968		)	(4,190		)	(10,360		)	(22,911		)
Total income (loss) from servicing rights	$	553		$	2,096		$	4,992		$	(6,539	)

During the year ended December 31, 2016, the Company entered into a flow-agreement establishing general terms for the purchase and sale to a third party MSR investor in connection with residential mortgage loan sales to GSEs. The flow-agreement allowed the Company to sell its MSRs to a third party MSR investor contemporaneous with the Company’s sales of its servicing retained residential mortgages to the GSEs. Accordingly, entering into the flow-agreement reduced the impact of volatility associated with the Company's MSRs by allowing the Company to sell its MSRs immediately, thus reducing the Company's exposure to market and other conditions. During the three months ended March 31, 2017, the Company suspended sales of MSRs under the flow-agreement. The Company does not expect to resume sales under the flow-agreement, as the Company has discontinued its Mortgage Banking segment operations.

The following table presents a composition of servicing rights, on a consolidated operations basis, as of the dates indicated:



	September 30, 2017		December 31, 2016
	(In thousands)
Mortgage servicing rights, at fair value	$	38,715	$	76,121
SBA servicing rights, at amortized cost	1,733		1,496
Total	$	40,448	$	77,617

Mortgage loans sold with servicing retained are subserviced by a third party vendor. The unpaid principal balance of these loans at September 30, 2017 and December 31, 2016 was $4.22 billion and $7.58 billion, respectively. Custodial escrow balances maintained in connection with serviced loans were $33.6 million and $34.2 million at September 30, 2017 and December 31, 2016, respectively. The reductions in these balances were principally driven by the sale of $37.8 million of MSRs during the three months ended March 31, 2017 as a part of discontinued operations.

Mortgage Servicing Rights

The following table presents the key characteristics, inputs and economic assumptions used to estimate the Level 3 fair value of the MSRs, on a consolidated operations basis, as of the dates indicated:



	September 30, 2017			December 31, 2016
	($ in thousands)
Fair value of retained MSRs	$	38,715		$	76,121
Discount rate	10.96		%	10.18		%
Constant prepayment rate	14.49		%	11.84		%
Weighted-average life	5.64 years			6.50 years

The following table presents activity in the MSRs, on a consolidated operations basis, for the periods indicated:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
	(In thousands)
Balance at beginning of period	$	42,109		$	52,567		$	76,121		$	49,939
Additions	574			14,300			12,126			35,648
Sales of servicing rights⁽¹⁾	—			—			(39,186		)	(3		)
Changes in fair value resulting from valuation inputs or assumptions	(1,905		)	(465		)	(4,984		)	(14,497		)
Other	(2,063		)	(3,726		)	(5,362		)	(8,411		)
Balance at end of period	$	38,715		$	62,676		$	38,715		$	62,676

(1) Includes $37.8 million of MSRs sold as a part of discontinued operations for the nine months ended September 30, 2017.

SBA Servicing Rights

The Company used a discount rate of 8.25 percent to calculate the present value of cash flows and an estimated prepayment speed based on prepayment data available. Discount rates and prepayment speeds are reviewed quarterly and adjusted as appropriate. The following table presents activity in the SBA servicing rights for the periods indicated:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
	(In thousands)
Balance at beginning of period	$	1,725		$	1,083		$	1,496		$	788
Additions	133			122			479			505
Amortization, including prepayments	(59		)	(38		)	(159		)	(126		)
Impairment	(66		)	—			(83		)	—
Balance at end of period	$	1,733		$	1,167		$	1,733		$	1,167