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Loans Held for Sale

12 Months Ended

Dec. 31, 2023

3) Loans Held for Sale

The Company’s loans held for sale portfolio is valued using the fair value option. Changes in the fair value of the loans are included in mortgage fee income. Interest income is recorded based on the contractual terms of the loan and in accordance with the Company’s policy on recognition of mortgage loan interest income and is included in mortgage fee income on the consolidated statement of earnings. Included in loans held for sale are loans in the process of foreclosure with an aggregate unpaid principal balance of $1,636,090 and nil as of December 31, 2023 and 2022, respectively. See Note 17 of the Notes to Consolidated Financial Statements for additional disclosures regarding loans held for sale.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2023 and 2022

3) Loans Held for Sale (Continued)

The following table presents the aggregate fair value and the aggregate unpaid principal balance of loans held for sale.

	2023			2022
	December 31,
	2023			2022
Aggregate fair value	$	126,549,190		$	141,179,620
Unpaid principal balance		127,185,867			141,337,811
Unrealized loss		(636,677	)		(158,191	)

Mortgage Fee Income

Mortgage fee income consists of origination fees, processing fees, interest income and 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 summarized as follows:

	2023			2022
	Years Ended December 31
	2023			2022
Loan fees	$	21,724,456		$	24,184,972
Interest income		9,547,741			9,666,149
Secondary gains		68,505,014			153,870,807	(1)
Change in fair value of loan commitments		(1,123,615	)		(4,308,638	)
Change in fair value of loans held for sale		(478,460	)		(8,834,797	)
Provision for loan loss reserve		(27,164	)		(1,078,812	)
Mortgage fee income	$	98,147,972		$	173,499,681

(1)

Includes a net gain of $34,051,938 for the sale of mortgage servicing rights

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2023 and 2022

3) Loans Held for Sale (Continued)

Loan Loss Reserve

Repurchase demands from third party investors that correspond to mortgage loans previously held for sale and sold are reviewed and relevant data is captured so that an estimated future loss can be calculated. The key factors that are used in the estimated future 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 can resolve the issues relating to the repurchase demand by the third-party investor without having to make any payments to the investor.

The loan loss reserve, which is included in other liabilities and accrued expenses, is summarized as follows:

	December 31,
	2023			2022
Beginning Balance	$	1,725,667		$	2,447,139
Provision for current loan originations (1)		27,164			1,078,812
Charge-offs, net of recaptured amounts		(1,205,598	)		(1,800,284	)
Ending Balance	$	547,233		$	1,725,667

(1)

Included in Mortgage fee income

The Company maintains reserves for estimated losses on current production volumes. For 2023, $27,164 in reserves were added at a rate of 4.3 basis points per loan, the equivalent of $430 per $1,000,000 in loans originated. This is a decrease over 2022, when $1,078,812 in reserves were added at a rate of 3.19 basis points per loan originated, the equivalent of $319 per $1,000,000 in loans originated. The Company monitors market data and trends, economic conditions (including forecasts) and its own experience to maintain adequate loss reserves on current production.