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SERVICING ASSETS
 12 Months Ended
Dec. 31, 2023
Transfers and Servicing [Abstract]  
SERVICING ASSETS SERVICING ASSETS
OFG periodically sells or securitizes mortgage loans while retaining the obligation to perform the servicing of such loans. In addition, OFG may purchase or assume the right to service mortgage loans originated by others. Whenever OFG undertakes an obligation to service a loan, management assesses whether a servicing asset and/or liability should be recognized. A servicing asset is recognized whenever the compensation for servicing is expected to more than adequately compensate OFG for servicing the loans. Likewise, a servicing liability would be recognized in the event that servicing fees to be received are not expected to adequately compensate OFG for its expected cost.
At December 31, 2023, the fair value of mortgage servicing rights was $49.5 million ($50.9 million — December 31, 2022).
The following table presents the changes in servicing rights measured using the fair value method for 2023, 2022 and 2021:
Year Ended December 31,
202320222021
(In thousands)
Fair value at beginning of year$50,921 $48,973 $47,295 
Servicing from mortgage securitization or asset transfers2,560 3,998 6,089 
Changes due to payments on loans(4,163)(5,312)(6,738)
Changes in fair value due to changes in valuation model inputs or assumptions202 3,262 2,327 
Fair value at end of year$49,520 $50,921 $48,973 
The following table presents key economic assumption ranges used in measuring the mortgage-related servicing asset fair value as of December 31, 2023, 2022 and 2021:
Year Ended December 31,
202320222021
Constant prepayment rate
1.35% - 17.34%
3.43% - 21.20%
3.90% - 24.48%
Discount rate
10.00% - 15.50%
10.00% - 15.50%
10.00% - 15.50%
The sensitivity of the current fair value of servicing assets to immediate 10 percent and 20 percent adverse changes in the above key assumptions were as follows:
December 31,
20232022
(In thousands)
Mortgage-related servicing asset
Carrying value of mortgage servicing asset$49,520 50,921 
Weighted average life (in years)7.37.8
Constant prepayment rate
Decrease in fair value due to 10% adverse change$(928)$(956)
Decrease in fair value due to 20% adverse change$(1,821)$(1,880)
Discount rate
Decrease in fair value due to 10% adverse change$(1,999)$(2,265)
Decrease in fair value due to 20% adverse change$(3,856)$(4,356)
These sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in fair value based on a 10% variation in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in this table, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated without changing any other assumption.
Changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments), which may magnify or offset the sensitivities. Mortgage banking activities, a component of total banking and financial service revenue in the consolidated statements of operations, include the changes from period to period in the fair value of the mortgage loan servicing rights, which may result from changes in the valuation model inputs or assumptions (principally reflecting changes in discount rates and prepayment speed assumptions) and other changes, including changes due to collection/realization of expected cash flows.
Servicing fee income is based on a contractual percentage of the outstanding principal balance and is recorded as income when earned and included in the mortgage banking activities section in the consolidated statement of operations. Servicing fees on mortgage loans for 2023, 2022 and 2021 totaled $19.0 million, $20.3 million and $21.4 million , respectively.