NYCB 2017 Annual Report

120 income. The specialist and the Company evaluate, and periodically adjust, as necessary, these underlying inputs and assumptions to reflect market conditions and changes in the assumptions that a market participant would consider in valuing MSRs. The collective amount of contractually specified servicing fees, late fees, and ancillary fees, which is recorded as “Mortgage banking income” in the Consolidated Statements of Operations and Comprehensive Income (Loss), was $1.2 million and $1.3 million, and $941,000 for the years ended December 31, 2017, 2016, and 2015, respectively. Participation MSRs are initially carried at fair value and are subsequently amortized and carried at the lower of their fair value or amortized amount. The amortization is recorded in proportion to, and over the period of, estimated net servicing income, with impairment of those servicing assets evaluated through an assessment of their fair value via a discounted cash-flow method. The net carrying value is compared to the discounted estimated future net cash flows to determine whether adjustments should be made to carrying values or amortization schedules. Impairment of participation MSRs is recognized through a valuation allowance and a charge to current-period earnings if it is considered to be temporary, or through a direct write-down of the asset and a charge to current-period earnings if it is considered to be other than temporary. The predominant risk characteristics of the underlying loans that are used to stratify the participation MSRs for measurement purposes generally include the (1) loan origination date, (2) loan rate, (3) loan type and size, (4) loan maturity date, and (5) geographic location. Changes in the carrying value of participation MSRs due to amortization or declines in fair value (i.e., impairment), if any, are reported in “Other inc ome” in the period during which such changes occur. In the years ended December 31, 2017 and 2016, there was no impairment related to the Company’s participation MSRs. The following table presents the changes in the balances of residential MSRs and participation MSRs for the years ended December 31, 2017 and 2016: For the Years Ended December 31, 2017 2016 (in thousands) Residential Participation Residential Participation Carrying value, beginning of year $ 228,099 $ 5,862 $ 243,389 $ 4,345 Additions 18,054 710 45,588 3,774 Sales (208,827) -- -- -- Increase (decrease) in fair value: Due to changes in interest rates (2,096) -- 3,341 -- Due to model assumption changes (1) -- -- (13,088) -- Due to loan payoffs (22,610) -- (33,425) -- Due to passage of time and other changes (9,891) -- (17,706) -- Amortization -- (3,201) -- (2,257) Carrying value, end of period $ 2,729 $ 3,371 $ 228,099 $ 5,862 (1) Represents changes in fair value driven by changes to the inputs to the valuation model related to assumed prepayment speeds. The following table presents the key assumptions used in calculating the f air value of the Company’s residential MSRs at the dates indicated: December 31, 2017 2016 Expected weighted average life 87 months 82 months Constant prepayment speed 9.81% 8.70% Discount rate 12.00 10.05 Primary mortgage rate to refinance 4.02 4.11 Cost to service (per loan per year): Current $ 70 $ 64 30-59 days or less delinquent 220 214 60-89 days delinquent 370 364 90-119 days delinquent 470 464 120 days or more delinquent 870 864 The increase in the constant prepayment speed was primarily attributable to an increase in the housing price index used by the Company’s third -party valuation specialist, suggesting that homebuyer demand has increased and newly created equity could lead to more refinancing.