MORTGAGE BANKING ACTIVITIES
Pursuant to the Brand acquisition on March 1, 2020,
the Company’s mortgage banking
activities at its subsidiary Capital City
Homes Loans have expanded to include mandatory
delivery loan sales, forward sales contracts used to manage
pipeline price risk, utilization of warehouse lines to fund
secondary market residential loan closings, and residential mortgage
Information provided below reflects CCHL activities post acquisition for
the period March 1, 2020 to December 31,
2020 and CCB legacy residential real estate activities for the
period January 1, 2020 to March 1, 2020.
Residential Mortgage Loan Production
The Company originates, markets, and services conventional
and government-sponsored residential mortgage
conforming fixed rate residential mortgage loans are held
for sale in the secondary market and non-conforming and
rate residential mortgage loans may be held for investment.
The volume of residential mortgage loans originated
for sale and
secondary market prices are the primary drivers of origination
Residential mortgage loan commitments are generally outstanding
for 30 to 90 days, which represents the typical period from
commitment to originate a residential mortgage loan to
when the closed loan is sold to an investor.
Residential mortgage loan
commitments are subject to both credit and price risk.
Credit risk is managed through underwriting policies and
including collateral requirements, which are generally
accepted by the secondary loan markets.
Price risk is primarily related to
interest rate fluctuations and is partially managed through
forward sales of residential mortgage-backed securities (primarily
announced securities, or TBAs) or mandatory delivery commitments
The unpaid principal balance of residential mortgage loans
held for sale, notional amounts of derivative contracts
residential mortgage loan commitments and forward contract sales and
their related fair values are set forth below.
December 31, 2020
(Dollars in Thousands)
Residential Mortgage Loans Held for Sale
Residential Mortgage Loan Commitments ("IRLCs")
Forward Sales Contracts
Recorded in other assets at fair value
Recorded in other liabilities at fair value
Residential mortgage loans held for sale that were
90 days or more outstanding or on nonaccrual totaled $
Mortgage banking revenues for the year ended December
31, was as follows:
(Dollars in Thousands)
Net realized gains on sales of mortgage loans
Net change in unrealized gain on mortgage loans held
Net change in the fair value of mortgage loan commitments
Net change in the fair value of forward sales contracts
Pair-Offs on net settlement of forward
Mortgage servicing rights additions
Net origination fees
Residential Mortgage Servicing
The Company may retain the right to service residential
mortgage loans sold.
The unpaid principal balance of loans serviced for
others is the primary driver of servicing revenue.
The following represents a summary of mortgage
Conforming conventional loans serviced by the Company
are sold to FNMA on a non-recourse basis, whereby foreclosure
are generally the responsibility of FNMA and not the
The government loans serviced by the Company are secured
through GNMA, whereby the Company is insured
against loss by the Federal Housing Administration or partially guaranteed
against loss by the Veterans
At December 31, 2020, the servicing portfolio balance consisted
of the following
loan types: FNMA (
%), GNMA (
%), and private investor (
FNMA and private investor loans are structured as
actual/actual payment remittance.
At December 31, 2020, delinquent residential mortgage
loans currently in GNMA pools serviced by the Company totaled $
The right to repurchase these loans and the corresponding liability
has been recorded in other assets and other liabilities,
the Consolidated Statements of Financial Condition.
Activity in the capitalized mortgage servicing rights for the
year ended December 31, was as follows:
The Company had
permanent impairment losses on its mortgage servicing
rights for the year ended December 31, 2020.
At December 31, 2020, the key unobservable inputs used
in determining the fair value of the Company’s
rights were as follows:
Annual prepayment speeds
Cost of servicing (basis points)
Changes in residential mortgage interest rates directly
affect the prepayment speeds used in valuing the Company’s
A separate third party model is used to estimate prepayment speeds
based on interest rates, housing turnover
rates, estimated loan curtailment, anticipated defaults, and
other relevant factors.
The weighted average annual prepayment speed
The Company has the following warehouse lines of
credit and master repurchase agreements with various financial institutions
December 31, 2020.
line borrowings are classified as short-term borrowings.
At December 31, 2020, the Company had mortgage loans
held for sale pledged as collateral under the above
warehouse lines of credit and master repurchase agreements.
agreements also contain covenants which include
certain financial requirements, including maintenance of minimum
worth, minimum liquid assets, maximum debt to
net worth ratio and positive net income, as defined in the agreements.
Company was in compliance with all significant debt
covenants at December 31, 2020.
The Company intends to renew the warehouse lines of
credit and master repurchase agreements when they mature
The Company has extended a $
million warehouse line of credit to CCHL, a
% owned subsidiary entity.
transactions under this line of credit are eliminated
in the Company’s consolidated
financial statements and thus not included in
the total short term borrowings noted on the consolidated
statement of financial condition.
The balance of this line of credit at
December 31, 2020 was $