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SERVICING RIGHTS | 9 Months Ended
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Sep. 30, 2018
Transfers and Servicing [Abstract] |
SERVICING RIGHTS | 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 from servicing rights, which is reported in Loan Servicing Income on the Consolidated Statements of Operations, on a consolidated operations basis, for the three and nine months ended September 30, 2018 and 2017:
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
($ in thousands) |  | 2018 |  | 2017 |  | 2018 |  | 2017
Servicing fees for sold loans with servicing retained |  | $ | 472 |  |  | $ | 4,521 |  |  | $ | 4,612 |  |  | $ | 15,352 |
Losses on the fair value and runoff of servicing rights |  | (33 | ) |  | (3,968 | ) |  | (914 | ) |  | (10,360 | )
Total income from servicing rights |  | $ | 439 |  |  | $ | 553 |  |  | $ | 3,698 |  |  | $ | 4,992 |
During the three months ended March 31, 2017, the Company suspended sales of MSRs under a flow-agreement with a third party investor that occurred contemporaneous with SFR mortgage loan sales to GSEs. The Company does not expect to resume sales under the flow-agreement, as the Company has discontinued its mortgage banking activities. During the first half of 2018, the Company sold $28.5 million of MSRs on approximately $3.55 billion in unpaid principal balances of conventional agency mortgage loans for cash consideration of $30.1 million, subject to a prepayment protection provision and standard representations and warranties. There were no sales of MSRs during the three months ended September 30, 2018. During the three months ended September 30, 2018, the Company recorded a net gain on sale of mortgage servicing rights of $24 thousand primarily as a result of the release of liability of transaction costs as the amount paid was less than the accrued liability. The sale of MSRs resulted in a net loss of $2.4 million for the nine months ended September 30, 2018, primarily related to transaction costs, provision for early repayments of loans, and expected repurchase obligations under standard representations and warranties. The following table presents a composition of servicing rights, on a consolidated operations basis, as of the dates indicated:
($ in thousands) |  | September 30, 2018 |  | December 31, 2017
Mortgage servicing rights, at fair value |  | $ | 2,029 |  |  | $ | 31,852 |
SBA servicing rights, at amortized cost |  | 1,741 |  |  | 1,856 |
Total |  | $ | 3,770 |  |  | $ | 33,708 |
Mortgage loans sold with servicing retained are subserviced by a third party vendor. The unpaid principal balance of these loans at September 30, 2018 and December 31, 2017 was $223.6 million and $3.94 billion, respectively. Custodial escrow balances maintained in connection with serviced loans were $479 thousand and $17.8 million at September 30, 2018 and December 31, 2017, respectively. The unpaid principal balance of the loans underlying our SBA servicing rights at September 30, 2018 and December 31, 2017 was $99.0 million and $101.0 million, respectively. Mortgage Servicing Rights At September 30, 2018 and December 31, 2017, MSRs of $66 thousand and $29.8 million, respectively, were held for sale and valued based on a market bid adjusted for expected repurchase obligations under standard representations and warranties as a Level 3 fair value measurement. The value of retained MSRs is generally estimated based on a valuation from a third party provider that calculates the present value of the expected net servicing income from the portfolio based on key factors that include interest rates, prepayment assumptions, discount rate and estimated cash flows. The following table presents the key characteristics, inputs and economic assumptions used to estimate the fair value of the MSRs as of the dates indicated:
($ in thousands) |  | September 30, 2018 |  | December 31, 2017
Fair value of retained MSRs |  | $ | 1,963 |  |  | $ | 2,059 |
Discount rate |  | 13.00 | % |  | 13.00 | %
Constant prepayment rate |  | 16.25 | % |  | 16.54 | %
Weighted-average life |  | 5.16 years |  |  | 5.07 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,
($ in thousands) |  | 2018 |  | 2017 |  | 2018 |  | 2017
Balance at beginning of period |  | $ | 2,062 |  |  | $ | 42,109 |  |  | $ | 31,852 |  |  | $ | 76,121 |
Additions |  | — |  |  | 574 |  |  | — |  |  | 12,126 |
Sales of servicing rights (1) |  | — |  |  | — |  |  | (28,549 | ) |  | (39,186 | )
Changes in fair value resulting from valuation inputs or assumptions |  | 33 |  |  | (1,905 | ) |  | (1,057 | ) |  | (4,984 | )
Other |  | (66 | ) |  | (2,063 | ) |  | (217 | ) |  | (5,362 | )
Balance at end of period |  | $ | 2,029 |  |  | $ | 38,715 |  |  | $ | 2,029 |  |  | $ | 38,715 |
(1) Includes $37.8 million of MSRs sold as a part of discontinued operations for the nine months ended September 30, 2017. SBA Servicing Rights The Company used a discount rate of 9.25 percent to calculate the present value of cash flows and used available prepayment data to estimate prepayment speed. Discount rates and prepayment speeds are reviewed quarterly and adjusted as appropriate. The following table presents activity in the SBA servicing rights for the periods indicated:
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
($ in thousands) |  | 2018 |  | 2017 |  | 2018 |  | 2017
Balance at beginning of period |  | $ | 1,807 |  |  | $ | 1,725 |  |  | $ | 1,856 |  |  | $ | 1,496 |
Additions |  | 18 |  |  | 133 |  |  | 127 |  |  | 479 |
Amortization, including prepayments |  | (75 | ) |  | (59 | ) |  | (228 | ) |  | (159 | )
Impairment |  | (9 | ) |  | (66 | ) |  | (14 | ) |  | (83 | )
Balance at end of period |  | $ | 1,741 |  |  | $ | 1,733 |  |  | $ | 1,741 |  |  | $ | 1,733 |

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- Definition The entire disclosure for a transferor's continuing involvement in financial assets that it has transferred in a securitization or asset-backed financing arrangement, the nature of any restrictions on assets reported by an entity in its statement of financial position that relate to a transferred financial asset (including the carrying amounts of such assets), how servicing assets and servicing liabilities are reported, and (for securitization or asset-backed financing arrangements accounted for as sales) when a transferor has continuing involvement with the transferred financial assets and transfers of financial assets accounted for as secured borrowings, how the transfer of financial assets affects an entity's financial position, financial performance, and cash flows. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 860 -URI http://asc.fasb.org/topic&trid=2197590 + Details
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