Quarterly report pursuant to Section 13 or 15(d)

Servicing Activities (Notes)

v3.2.0.727
Servicing Activities (Notes)
 6 Months Ended
Jun. 30, 2015
Disclosures Pertaining to Servicing Assets and Servicing Liabilities [Abstract]  
Transfers and Servicing of Financial Assets [Text Block]
Servicing Activities
Mortgage Servicing Rights, at Fair Value
One of the Company’s wholly owned subsidiaries has approvals from the Federal National Mortgage Association, or Fannie Mae, the Federal Home Loan Mortgage Corporation, or Freddie Mac, and the Government National Mortgage Association, or Ginnie Mae, to hold and manage MSR, which represent the right to control the servicing of mortgage loans. The Company and its subsidiaries do not originate or directly service mortgage loans, and instead contract with fully licensed subservicers to handle substantially all servicing functions for the loans underlying the Company’s MSR. The following table summarizes activity related to MSR for the three and six months ended June 30, 2015 and 2014.
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
(in thousands)
2015
 
2014
 
2015
 
2014
Balance at beginning of period
$
410,229

 
$
476,663

 
$
452,006

 
$
514,402

Additions from purchases of servicing rights
4,210

 
53,013

 
8,534

 
54,293

Additions from sales of residential mortgage loans
589

 
—

 
816

 
—

Changes in fair value due to:
 
 
 
 
 
 
 
Changes in valuation inputs or assumptions used in the valuation model
25,440

 
(15,655
)
 
(17,649
)
 
(35,905
)
Other changes in fair value (1)
(7,805
)
 
(13,916
)
 
(17,119
)
 
(26,427
)
Other changes (2)
4,913

 
385

 
10,988

 
(5,873
)
Balance at end of period
$
437,576

 
$
500,490

 
$
437,576

 
$
500,490

____________________
(1)
Other changes in fair value primarily represents changes due to the realization of expected cash flows.
(2)
Other changes includes purchase price adjustments, contractual prepayment protection, and changes due to the Company’s purchase of the underlying collateral.

As of June 30, 2015 and December 31, 2014, the key economic assumptions and sensitivity of the fair value of MSR to immediate 10% and 20% adverse changes in these assumptions were as follows:
(in thousands)
June 30,
2015
 
December 31,
2014
Weighted average prepayment speed:
11.2
%
 
11.9
%
Impact on fair value of 10% adverse change
$
(17,941
)
 
$
(14,012
)
Impact on fair value of 20% adverse change
$
(34,131
)
 
$
(31,640
)
Weighted average delinquency:
4.6
%
 
5.6
%
Impact on fair value of 10% adverse change
$
(2,188
)
 
$
(3,616
)
Impact on fair value of 20% adverse change
$
(4,376
)
 
$
(6,780
)
Weighted average discount rate:
9.4
%
 
9.5
%
Impact on fair value of 10% adverse change
$
(15,753
)
 
$
(16,272
)
Impact on fair value of 20% adverse change
$
(30,630
)
 
$
(31,640
)


These assumptions and sensitivities are hypothetical and should be considered with caution. Changes in fair value based on 10% and 20% variations in assumptions generally cannot be extrapolated because the relationship of the change in assumptions to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of MSR is calculated without changing any other assumptions. In reality, changes in one factor may result in changes in another (e.g., increased market interest rates may result in lower prepayments and increased credit losses) that could magnify or counteract the sensitivities. Further, these sensitivities show only the change in the asset balances and do not show any expected change in the fair value of the instruments used to manage the interest rates and prepayment risks associated with these assets.
Risk Mitigation Activities
The primary risk of the Company’s MSR is interest rate risk and the resulting impact on prepayments. A significant decline in interest rates could lead to higher-than-expected prepayments that could reduce the value of the MSR. The Company economically hedges the impact of these risks with AFS securities and derivative financial instruments. Refer to Note 12 - Derivative Instruments and Hedging Activities for additional information regarding the derivative financial instruments used to economically hedge MSR.
Mortgage Servicing Income
The following table presents the components of servicing income recorded on the Company’s condensed consolidated statements of comprehensive income for the three and six months ended June 30, 2015 and 2014:
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
(in thousands)
2015
 
2014
 
2015
 
2014
Servicing fee income
$
29,586

 
$
33,079

 
$
60,823

 
$
62,950

Ancillary fee income
551

 
581

 
1,115

 
1,044

Float income
379

 
208

 
665

 
315

Total
$
30,516

 
$
33,868

 
$
62,603

 
$
64,309



Mortgage Servicing Advances
In connection with the servicing of loans, the Company’s subservicers make certain payments for property taxes and insurance premiums, default and property maintenance payments, as well as advances of principal and interest payments before collecting them from individual borrowers. Servicing advances, including contractual interest, are priority cash flows in the event of a loan principal reduction or foreclosure and ultimate liquidation of the real estate-owned property, thus making their collection reasonably assured. These servicing advances, which are funded by the Company, totaled $30.8 million and $27.5 million and were included in other assets on the condensed consolidated balance sheets as of June 30, 2015 and December 31, 2014, respectively.
Serviced Mortgage Assets
The Company’s total serviced mortgage assets consist of loans owned and classified as residential mortgage loans held-for-sale, loans held in consolidated VIEs classified as residential mortgage loans held-for-investment in securitization trusts and loans underlying MSR. The following table presents the number of loans and unpaid principal balance of the mortgage assets for which the Company manages the servicing as of June 30, 2015 and December 31, 2014:
 
June 30, 2015
 
December 31, 2014
(dollars in thousands)
Number of Loans
 
Unpaid Principal Balance
 
Number of Loans
 
Unpaid Principal Balance
Residential mortgage loans held-for-sale
1,293

 
$
703,966

 
1,008

 
$
534,101

Residential mortgage loans held-for-investment in securitization trusts
441

 
322,335

 
487

 
358,458

Mortgage servicing rights (1)
214,745

 
42,811,294

 
224,073

 
44,949,061

Total serviced mortgage assets
216,479

 
$
43,837,595

 
225,568

 
$
45,841,620

____________________
(1)
Includes residential mortgage loans held-for-investment in securitization trusts for which the Company is the named servicing administrator.