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12) Mortgage Servicing Rights

3 Months Ended

Mar. 31, 2021

The Company initially records these MSRs at fair value as discussed in Note 8.

After being initially recorded at fair value, MSRs backed by mortgage loans are accounted for using the amortization method. Amortization expense is included in other expenses on the consolidated statements of earnings. MSR amortization is determined by amortizing the MSR balance in proportion to, and over the period of the estimated future net servicing income of the underlying financial assets.

The Company periodically assesses MSRs for impairment. Impairment occurs when the current fair value of the MSR falls below the asset’s carrying value (carrying value is the amortized cost reduced by any related valuation allowance). If MSRs are impaired, the impairment is recognized in current-period earnings and the carrying value of the MSRs is adjusted through a valuation allowance.

Management periodically reviews the various loan strata to determine whether the value of the MSRs in a given stratum is impaired and likely to recover. When management deems recovery of the value to be unlikely in the foreseeable future, a write-down of the cost of the MSRs for that stratum to its estimated recoverable value is charged to the valuation allowance.

The following is a summary of the MSR activity for the periods presented.

	As of March 31 2021	As of December 31 2020
Amortized cost:
Balance before valuation allowance at beginning of year	$ 35,210,516	$ 17,155,529
MSR additions resulting from loan sales	11,008,149	29,896,465
Amortization (1)	(3,439,304)	(11,841,478)
Application of valuation allowance to write down MSRs with other than temporary impairment	-	-
Balance before valuation allowance at end of period	$ 42,779,361	$ 35,210,516

Valuation allowance for impairment of MSRs:
Balance at beginning of year	$ -	$ -
Additions	-	-
Application of valuation allowance to write down MSRs with other than temporary impairment	-	-
Balance at end of period	$ -	$ -

Mortgage servicing rights, net	$ 42,779,361	$ 35,210,516

Estimated fair value of MSRs at end of period	$ 55,087,150	$ 38,702,358

(1) Included in other expenses on the condensed consolidated statements of earnings

The following table summarizes the Company’s estimate of future amortization of its existing MSRs carried at amortized cost:

		Estimated MSR Amortization
2021		5,760,982
2022		4,670,850
2023		4,116,524
2024		3,617,054
2025		3,191,065
Thereafter		21,422,886
Total		$ 42,779,361

The Company collected the following contractual servicing fee income and late fee income as reported in other revenues on the condensed consolidated statement of earnings:

	Three Months Ended March 31
	2021	2020
Contractual servicing fees	$ 3,387,472	$ 1,784,944
Late fees	81,050	97,808
Total	$ 3,468,522	$ 1,882,752

The following is a summary of the unpaid principal balances (“UPB”) of the servicing portfolio for the periods presented:

	As of March 31 2021		As of December 31 2020
Servicing UPB	$ 5,824,986,566		$ 5,070,287,864

The following key assumptions were used in determining MSR value:

	Prepayment Speeds	Average Life (Years)	Discount Rate
March 31, 2021	11.90	6.72	9.50
December 31, 2020	15.60	5.30	9.50