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4) Loans Held For Sale | 9 Months Ended
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Sep. 30, 2019
Notes |
4) Loans Held For Sale | 4) Loans Held for Sale Accounting Standards Codification (“ASC”) No. 825, “Financial Instruments”, allows for the option to report certain financial assets and liabilities at fair value initially and at subsequent measurement dates with changes in fair value included in earnings. The option may be applied instrument by instrument, but it is irrevocable. The Company elected the fair value option for loans held for sale. The Company believes the fair value option most closely aligns the timing of the recognition of gains and costs. These loans are intended for sale and the Company believes that the fair value is the best indicator of the resolution of these loans. Electing fair value also reduces certain timing differences and better matches changes in the fair value of these assets with changes in the fair value of the related derivatives used for these assets. Interest income is recorded based on the contractual terms of the loan and in accordance with the Company’s policy on mortgage loans held for investment and is included in mortgage fee income on the condensed consolidated statement of earnings. There are seven loans with an aggregate unpaid principal balance of $1,925,914 that are 90 or more days past due and on a nonaccrual status as of September 30, 2019. See Note 8 to the condensed consolidated financial statements for additional disclosures regarding loans held for sale. The following is a summary of the aggregate fair value and the aggregate unpaid principal balance of loans held for sale for the periods presented:
| As of September 30 2019 | As of December 31 2018
Aggregate fair value | $ 233,713,098 | $ 136,210,853
Unpaid principal balance | 227,842,398 | 131,663,946
Unrealized gain | 5,870,700 | 4,546,907
Mortgage Fee Income Mortgage fee income consists of origination fees, processing fees, interest income and certain other income related to the origination and sale of mortgage loans held for sale. Major categories of mortgage fee income for loans held for sale are as follows:
| Three Months Ended September 30 |  | Nine Months Ended September 30
| 2019 |  | 2018 |  | 2019 |  | 2018
Loan fees | $ 8,438,471 |  | $ 7,758,284 |  | $ 22,162,455 |  | $ 21,347,320
Interest income | 2,127,775 |  | 1,993,895 |  | 5,032,505 |  | 4,698,899
Secondary gains | 27,574,294 |  | 22,315,022 |  | 66,434,923 |  | 58,633,363
Change in fair value of loan commitments | 378,899 |  | 94,569 |  | 1,915,223 |  | 537,696
Change in fair value of loans held for sale | 1,411,322 |  | (203,623) |  | 2,065,978 |  | 4,563,222
Provision for loan loss reserve | (195,009) |  | (293,443) |  | (449,894) |  | (946,556)
Mortgage fee income | $ 39,735,752 |  | $ 31,664,704 |  | $ 97,161,190 |  | $ 88,833,944
Loan Loss Reserve When a repurchase demand corresponding to a mortgage loan previously held for sale and sold to a third-party investor is received from a third-party investor, the relevant data is reviewed and captured so that an estimated future loss can be calculated. The key factors that are used in the estimated loss calculation are as follows: (i) lien position, (ii) payment status, (iii) claim type, (iv) unpaid principal balance, (v) interest rate, and (vi) validity of the demand. Other data is captured and is useful for management purposes; the actual estimated loss is generally based on these key factors. The Company conducts its own review upon the receipt of a repurchase demand. In many instances, the Company is able to resolve the issues relating to the repurchase demand by the third-party investor without having to make any payments to the investor. The following is a summary of the loan loss reserve that is included in other liabilities and accrued expenses:
| As of September 30 2019 |  | As of December 31 2018
Balance, beginning of period | $ 3,604,869 |  | $ 2,571,524
Provision on current loan originations (1) | 449,894 |  | 1,148,334
Charge-offs, net of recaptured amounts | (172,917) |  | (114,989)
Balance, end of period | $ 3,881,846 |  | $ 3,604,869
(1) Included in mortgage fee income |  |  |
The Company believes the loan loss reserve represents probable loan losses incurred as of the balance sheet date. Actual loan loss experience could change, in the near-term, from the established reserve based upon claims that could be asserted by third-party investors. The Company believes there is potential to resolve any alleged claims by third-party investors on acceptable terms. If the Company is unable to resolve such claims on acceptable terms, legal action may ensue. In the event of legal action by any third-party investor, the Company believes it has significant defenses to any such action and intends to vigorously defend itself against such action.

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