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SERVICING RIGHTS | 12 Months Ended
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Dec. 31, 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 periods indicated:
|  | Year Ended December 31,
($ in thousands) |  | 2018 |  | 2017 |  | 2016
Servicing fees for sold loans with servicing retained |  | $ | 5,048 |  |  | $ | 19,642 |  |  | $ | 23,117 |
Losses on the fair value and runoff of servicing rights |  | (1,328 | ) |  | (17,066 | ) |  | (17,732 | )
Total income from servicing rights(1) |  | $ | 3,720 |  |  | $ | 2,576 |  |  | $ | 5,385 |
(1) | Includes $1.6 million and $4.8 million in Income from discontinued operations for the years ended December 31, 2017 and 2016.
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. The sale of MSRs resulted in a net loss of $2.3 million for the year ended December 31, 2018, primarily related to transaction costs, provision for early repayments of loans, and expected repurchase obligations under standard representations and warranties. The following table presents a composition of servicing rights, on a consolidated operations basis, as of the dates indicated:
|  | December 31,
($ in thousands) |  | 2018 |  | 2017
Mortgage servicing rights, at fair value |  | $ | 1,770 |  |  | $ | 31,852 |
SBA servicing rights, at cost |  | 1,658 |  |  | 1,856 |
Total |  | $ | 3,428 |  |  | $ | 33,708 |
Mortgage loans sold with servicing retained are not reported as assets and are subserviced by a third party vendor. The unpaid principal balance of these loans at December 31, 2018 and 2017 was $204.0 million and $3.94 billion, respectively. Custodial escrow balances maintained in connection with serviced loans were $300 thousand and $17.8 million at December 31, 2018 and 2017, respectively. The reductions in these balances were principally driven by the sale of $28.5 million of MSRs during the year ended December 31, 2018. The unpaid principal balance of the loans underlying our SBA servicing rights at December 31, 2018 and 2017 was $96.4 million and $101.0 million, respectively. Mortgage Servicing Rights At December 31, 2018 and 2017, MSRs of $66 thousand and $29.8 million, respectively, were held for sale and valued based on a market bid adjusted for expected repurchase obligations under standard representations and warranties as a Level 3 fair value measurement. The value of retained MSRs is generally estimated based on a valuation from a third party provider that calculates the present value of the expected net servicing income from the portfolio based on key factors that include interest rates, prepayment assumptions, discount rate and estimated cash flows. The following table presents the key characteristics, inputs and economic assumptions used to estimate the fair value of the MSRs as of the dates indicated:
|  | December 31,
($ in thousands) |  | 2018 |  | 2017
Fair value of retained MSRs |  | $ | 1,704 |  |  | $ | 2,059 |
Discount rate |  | 13.00 | % |  | 13.00 | %
Constant prepayment rate |  | 17.21 | % |  | 16.54 | %
Weighted-average life |  | 4.93 years |  |  | 5.07 years |
The following table presents activity in the MSRs, on a consolidated operations basis, for the periods indicated:
|  | Year Ended December 31,
($ in thousands) |  | 2018 |  | 2017 |  | 2016
Balance at beginning of year |  | $ | 31,852 |  |  | $ | 76,121 |  |  | $ | 49,939 |
Additions |  | — |  |  | 12,127 |  |  | 49,293 |
Changes in fair value resulting from valuation inputs or assumptions |  | (1,155 | ) |  | (10,240 | ) |  | (5,709 | )
Sales of servicing rights (1) |  | (28,549 | ) |  | (39,345 | ) |  | (5,382 | )
Other—loans paid off |  | (378 | ) |  | (6,811 | ) |  | (12,020 | )
Balance at end of year |  | $ | 1,770 |  |  | $ | 31,852 |  |  | $ | 76,121 |
(1) Includes $37.8 million of MSRs sold as a part of discontinued operations for the year ended December 31, 2017. SBA Servicing Rights The value of SBA servicing rights is estimated based on a present value of the expected net servicing income from the portfolio based on key factors that include interest rates, prepayment assumptions, discount rate and estimated cash flows. The following table presents the key characteristics, inputs and economic assumptions used to estimate the fair value of the SBA servicing rights as of the dates indicated:
|  | December 31,
($ in thousands) |  | 2018 |  | 2017
Servicing rights |  | $ | 1,658 |  |  | $ | 1,856 |
Discount rate |  | 9.50 | % |  | 8.50 | %
Constant prepayment rate |  | 8.00 | % |  | 8.00 | %
Weighted-average life |  | 4.29 years |  |  | 4.54 years |
The following table presents activity in the SBA servicing rights for the periods indicated:
|  | Year Ended December 31,
($ in thousands) |  | 2018 |  | 2017 |  | 2016
Balance at beginning of year |  | $ | 1,856 |  |  | $ | 1,496 |  |  | $ | 788 |
Additions |  | 127 |  |  | 761 |  |  | 877 |
Amortization, including prepayments |  | (298 | ) |  | (318 | ) |  | (157 | )
Impairment |  | (27 | ) |  | (83 | ) |  | (12 | )
Balance at end of year |  | $ | 1,658 |  |  | $ | 1,856 |  |  | $ | 1,496 |

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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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