Net Servicing Revenue and Fees
A summary of net servicing revenue and fees is provided below (dollars in thousands):
For the Period From February 10, 2018 Through December 31, 2018
For the Period From January 1, 2018 Through February 9, 2018
For the Year Ended December 31, 2017
Incentive and performance fees
Ancillary and other fees
Servicing revenue and fees
Changes in valuation inputs or other assumptions (1)
Other changes in fair value (2)
Change in fair value of servicing rights
Amortization of servicing rights
Change in fair value of servicing rights related liabilities
Net servicing revenue and fees
Represents the net change in servicing rights carried at fair value resulting primarily from market-driven changes in interest rates and prepayment speeds.
Represents the realization of expected cash flows over time.
We recognize servicing revenue and fees on servicing performed for third parties in which we either own the servicing right or act as subservicer. This revenue includes contractual fees earned on the serviced loans; incentive and performance fees, including those earned based on the performance of certain loans or loan portfolios serviced by us, loan modification fees and asset recovery income; and ancillary fees such as late fees and expedited payment fees. Servicing revenue and fees are adjusted for the amortization and change in fair value of servicing rights and the change in fair value of any servicing rights related liabilities.
Servicing fees decreased $103.0 million in 2018 as compared to 2017 primarily due to the shift of our third-party servicing portfolio from servicing to subservicing and continued runoff of the overall servicing portfolio. Incentive and performance fees decreased $11.1 million in 2018 as compared to 2017 due primarily to reductions in asset recovery income, performance incentives, fees earned under HAMP and REO management fees, offset partially by higher Freddie Mac and Fannie Mae modification incentives. Ancillary and other fees decreased $10.8 million in 2018 as compared to 2017 due to lower late fee income and convenience and expedited payment fees resulting from a smaller overall servicing portfolio.
The change in the fair value of servicing rights improved $233.9 million in 2018 as compared to 2017. Refer to the Servicing segment section under Business Segment Results below for information regarding the change in fair value of our servicing rights.
Net Gains on Sales of Loans
Net gains on sales of loans include realized and unrealized gains and losses on loans held for sale, fair value adjustments on IRLCs and other related freestanding derivatives, values of the initial capitalized servicing rights, a provision for the repurchase of loans, and interest income. Net gains on sales of loans decreased $94.7 million in 2018 as compared to 2017 primarily due to a lower day one margin due to a product mix shift towards lower margin correspondent and wholesale channels combined with pricing decreases implemented in 2018, as well as an overall lower volume of locked loans. This decrease was offset partially by an increase resulting from higher pull-through rates in the consumer channel. In addition, net gains on sales of loans included a decrease in interest income on loans resulting from lower average loan balances, partially offset by higher average interest rates.
Net Fair Value Gains on Reverse Loans and Related HMBS Obligations
Net fair value gains on reverse loans and related HMBS obligations include the contractual interest income earned on reverse loans, including those not yet securitized or bought out of securitization pools, net of interest expense on HMBS related obligations, and the change in fair value of these assets and liabilities. Refer to the Reverse Mortgage segment discussion under our Business Segment Results section below for additional information including a detailed breakout of the components of net fair value gains on reverse loans and related HMBS obligations.