v3.25.2
SERVICING ASSETS
 6 Months Ended
Jun. 30, 2025
Transfers and Servicing [Abstract]  
SERVICING ASSETS SERVICING ASSETS
OFG periodically sells or securitizes mortgage loans while retaining the obligation to perform the servicing of such loans. In addition, OFG may purchase or assume the right to service mortgage loans originated by others. Whenever OFG undertakes an obligation to service a loan, management assesses whether a servicing asset and/or liability should be recognized. A servicing asset is recognized whenever the compensation for servicing is expected to more than adequately compensate OFG for servicing the loans. Likewise, a servicing liability would be recognized in the event that servicing fees to be received are not expected to adequately compensate OFG for its expected cost.
At June 30, 2025, the fair value of mortgage servicing rights was $68.6 million ($70.4 million — December 31, 2024).
The following table presents the changes in servicing rights measured using the fair value method for the quarters and six-month periods ended June 30, 2025 and 2024:
Quarter Ended June 30,Six-Month Period Ended June 30,
2025202420252024
(In thousands)
Fair value at beginning of period$69,238 $49,553 $70,435 $49,520 
Servicing from mortgage securitization or asset transfers751 303 1,410 830 
Changes due to payments on loans(1,346)(732)(2,608)(1,652)
Changes in fair value due to changes in valuation model inputs or assumptions(55)665 (649)1,091 
Fair value at end of period$68,588 $49,789 $68,588 $49,789 
On August 30, 2024, OFG acquired the servicing rights to a $1.7 billion mortgage loan portfolio that was being subserviced by the Bank. At the time of acquisition, the value of the servicing rights acquired amounted to $21.4 million.
The following table presents key economic assumption ranges used in measuring the mortgage-related servicing asset fair value as of June 30, 2025 and 2024:
Six-Month Period Ended June 30,
20252024
Constant prepayment rate
1.00% - 18.42%
1.49% - 11.45%
Discount rate
10.00% - 15.50%
10.00% - 15.50%
The sensitivity of the current fair value of servicing assets to immediate 10 percent and 20 percent adverse changes in the above key assumptions were as follows:
June 30,December 31,
20252024
(In thousands)
Mortgage-related servicing asset
Carrying value of mortgage servicing asset$68,588 70,435 
Weighted average life (in years)8.07.9
Constant prepayment rate
Decrease in fair value due to 10% adverse change$(1,233)$(1,276)
Decrease in fair value due to 20% adverse change$(2,422)$(2,505)
Discount rate
Decrease in fair value due to 10% adverse change$(2,993)$(3,103)
Decrease in fair value due to 20% adverse change$(5,756)$(5,966)
These sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in fair value based on a 10% variation in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. In addition, in this table, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated without changing any other assumption.
Changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments), which may magnify or offset the sensitivities. Mortgage banking activities, a component of total banking and financial service revenue in the consolidated statements of operations, include the changes from period to period in the fair value of the mortgage loan servicing rights, which may result from changes in the valuation model inputs or assumptions (principally reflecting changes in discount rates and prepayment speed assumptions) and other changes, including changes due to collection/realization of expected cash flows.
Servicing fee income is based on a contractual percentage of the outstanding principal balance. Ancillary fees include various service charges such as late payment fees and fees for additional services. These fees are recorded as income when earned and included in the mortgage banking activities section in the consolidated statement of operations. Servicing and ancillary fees on mortgage loans for the quarters ended June 30, 2025 and 2024 totaled $5.6 million and $4.5 million, respectively. Servicing and ancillary fees on mortgage loans for the six-month periods ended June 30, 2025 and 2024 totaled $11.1 million and $8.9 million, respectively.