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Fair Value of Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2014

Carrying Values and Estimated Fair Values of Assets and Liabilities

The following table presents the carrying values and estimated fair values of assets and liabilities that are required to be recorded or disclosed at fair value at June 30, 2014 and December 31, 2013.

				June 30, 2014								December 31, 2013
(In Thousands)				Carrying Value				Fair Value				Carrying Value				Fair Value
Assets
Residential loans, held-for-sale
At fair value				$	1,106,239			$	1,106,239			$	402,602			$	402,602
At lower of cost or fair value					1,638				1,788				1,665				1,817
Residential loans, held-for-investment					1,616,504				1,508,571				1,762,167				1,610,024
Commercial loans, held-for-sale					50,848				50,848				89,111				89,111
Commercial loans, held-for-investment
At fair value					71,270				71,270				-				-
At amortized cost					346,648				353,004				343,344				348,305
Trading securities					173,281				173,281				124,555				124,555
Available-for-sale securities					1,671,786				1,671,786				1,558,306				1,558,306
MSRs					71,225				71,225				64,824				64,824
Cash and cash equivalents					157,079				157,079				173,201				173,201
Restricted cash					393				393				398				398
Accrued interest receivable					15,109				15,109				13,475				13,475
Derivative assets					7,514				7,514				7,787				7,787
REO (1)					3,323				3,767				3,661				4,084
Margin receivable (1)					58,455				58,455				31,149				31,149
Other collateral posted (1)					5,000				5,000				5,000				5,000
Liabilities
Short-term debt				$	1,718,430			$	1,718,430			$	862,763			$	862,763
Accrued interest payable					7,154				7,154				6,366				6,366
Derivative liabilities					39,837				39,837				18,167				18,167
ABS issued					1,768,078				1,656,135				1,942,962				1,746,906
Commercial long-term debt					52,916				52,916				49,467				49,467
Commercial secured borrowings					66,692				66,692				-				-
Convertible notes					287,500				296,700				287,500				299,719
Other long-term debt					139,500				110,903				139,500				111,600

(1) These assets are included in Other Assets on our consolidated balance sheets.

Assets and Liabilities Measured at Fair Value on Recurring Basis

The following table presents the assets and liabilities that are reported at fair value on our consolidated balance sheets on a recurring basis at June 30, 2014, as well as the fair value hierarchy of the valuation inputs used to measure fair value.

Assets and Liabilities Measured at Fair Value on a Recurring Basis at June 30, 2014

June 30, 2014				Carrying				Fair Value Measurements Using
(In Thousands)				Value				Level 1				Level 2				Level 3
Assets
Residential loans, at fair value				$	1,106,239			$	-			$	259,675			$	846,564
Commercial loans, at fair value					122,118				-				-				122,118
Trading securities					173,281				-				-				173,281
Available-for-sale securities					1,671,786				-				-				1,671,786
MSRs					71,225				-				-				71,225
Derivative assets					7,514				3,295				2,513				1,707
Liabilities
Derivative liabilities					39,837				6,034				33,758				45
Commercial secured borrowings					66,692				-				-				66,692

Changes in Level 3 Assets and Liabilities Measured at Fair Value on Recurring Basis

The following table presents additional information about Level 3 assets and liabilities measured at fair value on a recurring basis for the six months ended June 30, 2014.

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis

				Assets																								Liabilities
(In Thousands)				Residential   Loans				Commercial   Loans				Trading   Securities				AFS   Securities				MSRs				Derivatives (1)				Commercial   Secured Borrowings
Beginning balance - December 31, 2013				$	391,100			$	89,111			$	124,555			$	1,558,306			$	64,824			$	(379)			$	-
Principal paydowns					(11,563)				(3,463)				(2,714)				(92,590)				-				-				(115)
Gains (losses) in net income, net					21,849				11,099				(13,133)				23,485				(8,265)				5,108				1,759
Unrealized gains in OCI, net					-				-				-				32,888				-				-				-
Acquisitions					1,717,244				271,424				64,573				151,010				14,666				-				65,048
Sales					(1,269,330)				(246,053)				-				(1,313)				-				-				-
Other settlements, net					(2,736)				-				-				-				-				(3,067)				-
Ending Balance - June 30, 2014				$	846,564			$	122,118			$	173,281			$	1,671,786			$	71,225			$	1,662			$	66,692

(1) For the purpose of this presentation, derivative assets and liabilities, which consist of loan purchase commitments, are presented net.

Portion of Net Gains (Losses) Attributable to Level 3 Assets and Liabilities Still Held and Included in Net Income

The following table presents the portion of gains or losses included in our consolidated statements of income that were attributable to Level 3 assets and liabilities recorded at fair value on a recurring basis and held at June 30, 2014 and 2013. Gains or losses incurred on assets or liabilities sold, matured, called, or fully written down during the three and six months ended June 30, 2014 and 2013 are not included in this presentation.

Portion of Net Gains (Losses) Attributable to Level 3 Assets and Liabilities Still Held at June 30, 2014 and 2013 Included in Net Income

				Included in Net Income
				Three Months Ended June 30,								Six Months Ended June 30,
(In Thousands)				2014				2013				2014				2013
Assets
Residential loans, at fair value				$	11,755			$	(59,649)			$	11,964			$	(59,641)
Commercial loans, at fair value					2,008				-				2,008				-
Trading securities					(9,257)				31,354				(13,688)				30,866
Available-for-sale securities					(264)				(1,642)				(377)				(1,665)
MSRs					(4,974)				9,450				(7,236)				9,532
Liabilities
Loan purchase commitments					1,707				-				1,707				-
Commercial secured borrowing					1,759				-				1,759				-

Assets and Liabilities Measured at Fair Value on Non-Recurring Basis

The following table presents information on assets recorded at fair value on a non-recurring basis at June 30, 2014. This table does not include the carrying value and gains or losses associated with the asset types below that were not recorded at fair value on our balance sheet at June 30, 2014.

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis at June 30, 2014

																				Gain (Loss) for
June 30, 2014 (In Thousands)				Carrying     Value				Fair Value Measurements Using												Three Months Ended				Six Months Ended
								Level 1				Level 2				Level 3				June 30, 2014				June 30, 2014
Assets
Residential loans, at lower of cost or fair value				$	1,107			$	-			$	-			$	1,107			$	1			$	(2)
REO					2,326				-				-				2,326				(521)				(343)

Market Valuation Adjustments, Net

The following table presents the components of market valuation adjustments, net, recorded in our consolidated statements of income for the three and six months ended June 30, 2014 and 2013.

Market Valuation Adjustments, Net

				Three Months Ended June 30,								Six Months Ended June 30,
(In Thousands)				2014				2013				2014				2013
Mortgage banking activities
Residential loans, at fair value				$	13,375			$	(41,405)			$	20,403			$	(6,535)
Commercial loans, at fair value					5,714				(345)				9,340				(345)
Trading securities					(8,810)				36,336				(13,087)				38,265
Derivative instruments, net					(8,673)				49,544				(15,755)				50,567
Loan purchase and forward sale commitments					3,582				-				3,590				-
Total mortgage banking activities (1)					5,188				44,130				4,491				81,952
MSRs					(5,553)				8,827				(8,265)				9,169
Other
Residential loans, at lower of cost or fair value					13				38				11				78
Trading securities					77				(4,140)				(76)				(4,707)
Impairments on AFS securities					(264)				(1,642)				(377)				(1,665)
REO					(321)				(558)				(464)				(331)
Other derivative instruments, net					(3,626)				44				(9,354)				64
Total other					(4,121)				(6,258)				(10,260)				(6,561)
Total Market Valuation Adjustments, Net				$	(4,486)			$	46,699			$	(14,034)			$	84,560

(1) Income from mortgage banking activities presented above does not include fee income that is a component of mortgage banking income presented on our consolidated statements of income as it does not represent a market valuation adjustment.

Quantitative Information about Significant Unobservable Inputs Used in Valuation of Level 3 Assets and Liabilities Measured at Fair Value

The following table provides quantitative information about the significant unobservable inputs used in the valuation of our Level 3 assets and liabilities measured at fair value.

Fair Value Methodology for Level 3 Financial Instruments

June 30, 2014 (Dollars in Thousands)				Fair Value				Unobservable Input				Range		Weighted Average
Assets
Residential loans, at fair value:
Loans priced to securitization or priced to whole loan market and uncommitted to sell				$	417,941			Discount rate				3 - 4 %			4 %
								Prepayment rate				10 - 10 %			10 %
								Default rate				1 - 1 %			1 %
								Loss severity				22 - 22 %			22 %
								Credit support				6 - 8 %			8 %
								Spread to securitization				50 bps - 50 bps			50 bps
Loans priced to whole loan market, committed to sell					428,624			Pool fallout assumption				10 bps - 10 bps			10 bps
Residential loans, at lower of cost or fair value					1,107			Loss severity				15-28 %			21 %
Commercial loans, at fair value					122,118			Credit spread				136 bps - 136 bps			136 bps
								Credit support				24 - 24 %			24 %
Trading and AFS securities					1,845,067			Discount rate				4 - 12 %			6 %
								Prepayment speed				1 - 35 %			14 %
								Default rate				0 - 35 %			7 %
								Loss severity				20 - 64 %			33 %
								Credit support				0 - 84 %			6 %
MSRs					71,225			Discount rate				9 - 11 %			11 %
								Prepayment rate				6 - 60 %			12 %
REO					2,326			Loss severity				0 - 93 %			18 %
Loan purchase commitments, net (1)					1,662			MSR Multiple				1 - 5x			4x
								Pullthrough rate				57 - 99 %			81 %
Liabilities
Commercial secured financing					66,692			Credit spread				136 bps - 136 bps			136 bps
								Credit support				24 - 24 %			24 %

(1) For the purpose of this presentation loan purchase commitment assets and liabilities are presented net.

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