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Fair Value of Financial Instruments (Tables)

12 Months Ended

Dec. 31, 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 December 31, 2014 and 2013.

		December 31, 2014								December 31, 2013
(In Thousands)		Carrying Value				Fair  Value				Carrying Value				Fair  Value
Assets
Residential loans, held-for-sale
At fair value		$	1,341,032			$	1,341,032			$	402,602			$	402,602
At lower of cost or fair value			1,488				1,669				1,665				1,817
Residential loans, held-for-investment, at fair value			581,668				581,668				—				—
Residential loans, held-for-investment			1,474,386				1,381,918				1,762,167				1,610,024
Commercial loans, held-for-sale, at fair value			166,234				166,234				89,111				89,111
Commercial loans, held-for-investment
At fair value			71,262				71,262				—				—
At amortized cost			329,431				334,876				343,344				348,305
Trading securities			111,606				111,606				124,555				124,555
Available-for-sale securities			1,267,624				1,267,624				1,558,306				1,558,306
MSRs			139,293				139,293				64,824				64,824
Cash and cash equivalents			269,730				269,730				173,201				173,201
Restricted cash			628				628				398				398
Accrued interest receivable			18,222				18,222				13,475				13,475
Derivative assets			16,417				16,417				7,787				7,787
REO (1)			4,391				4,703				3,661				4,084
Margin receivable (1)			65,374				65,374				31,149				31,149
FHLBC stock (1)			10,688				10,688				—				—
Guarantee asset (1)			7,201				7,201				—				—
Pledged collateral (1)			9,927				9,927				—				—
Liabilities
Short-term debt		$	1,793,825			$	1,793,825			$	862,763			$	862,763
Accrued interest payable			8,502				8,502				6,366				6,366
Guarantee obligation			7,201				7,201				—				—
Derivative liabilities			58,331				58,331				18,167				18,167
ABS issued			1,545,119				1,446,605				1,942,962				1,746,906
FHLBC Borrowings			495,860				495,860				—				—
Commercial long-term debt			—				—				49,467				49,467
Commercial secured borrowings			66,707				66,707				—				—
Convertible notes			492,500				492,188				287,500				299,719
Other long-term debt			139,500				101,835				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 as well as their classification in the fair value hierarchy based on the valuation inputs used to measure their fair value.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

December 31, 2014 (In Thousands)		Carrying Value				Fair Value Measurements Using
						Level 1				Level 2				Level 3
Assets
Residential loans, at fair value		$	1,922,700			$	—			$	244,716			$	1,677,984
Commercial loans, at fair value			237,496				—				—				237,496
Trading securities			111,606				—				—				111,606
Available-for-sale securities			1,267,624				—				—				1,267,624
Derivative assets			16,417				6,654				8,603				1,160
MSRs			139,293				—				—				139,293
Pledged collateral			9,927				9,927				—				—
FHLBC Stock			10,688				10,688				—				—
Guarantee asset			7,201				—				—				7,201
Liabilities
Derivative liabilities			58,331				9,878				48,412				41
Commercial secured borrowings			66,707				—				—				66,707
December 31, 2013 (In Thousands)		Carrying Value				Fair Value Measurements Using
						Level 1				Level 2				Level 3
Assets
Residential loans, at fair value		$	402,602			$	—			$	11,502			$	391,100
Commercial loans, at fair value			89,111				—				—				89,111
Trading securities			124,555				—				—				124,555
Available-for-sale securities			1,558,306				—				—				1,558,306
MSRs			64,824				—				—				64,824
Derivative assets			7,787				1,139				6,648				—
Liabilities
Derivative liabilities			18,167				1,189				16,599				379

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 years ended December 31, 2014 and 2013.

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				Guarantee Asset				Loan Purchase Commitments(1)				Commercial Secured Borrowings
Beginning balance - December 31, 2013		$	391,100			$	89,111			$	124,555			$	1,558,306			$	64,824			$	—			$	(379	)		$	—
Principal paydowns			(42,657	)			(4,157	)			(5,934	)			(168,308	)			—				—				—				(374	)
Amortization income			—				—				—				32,774				—				—				—				—
Gains (losses) in net income, net			56,835				22,824				(24,167	)			23,412				(21,081	)			—				14,527				2,033
Unrealized gains in OCI, net			—				—				—				24,302				—				—				—				—
Acquisitions			5,020,988				937,594				81,545				237,499				95,550				7,201				—				65,048
Sales			(3,746,417	)			(807,931	)			(64,393	)			(440,361	)			—				—				—				—
Other settlements, net			(1,865	)			55				—				—				—				—				(13,029	)			—
Ending balance - December 31, 2014		$	1,677,984			$	237,496			$	111,606			$	1,267,624			$	139,293			$	7,201			$	1,119			$	66,707

		Assets																				Liabilities
(In Thousands)		Residential Loans				Commercial Loans				Trading Securities				AFS Securities				MSRs				Loan Purchase Commitments(1)
Beginning balance - December 31, 2012		$	553,576			$	—			$	33,172			$	1,075,581			$	5,315			$	—
Principal paydowns			(16,166	)			(189	)			(1,244	)			(162,708	)			—				—
(Losses) gains in net income, net			(34,650	)			8,694				41,074				57,852				11,995				480
Unrealized losses in OCI, net			—				—				—				(21,924	)			—				—
Acquisitions			7,090,724				505,151				109,320				785,671				47,514				—
Sales			(7,201,472	)			(424,545	)			(57,767	)			(176,166	)			—				—
Other settlements, net			(912	)			—				—				—				—				(101	)
Ending balance - December 31, 2013		$	391,100			$	89,111			$	124,555			$	1,558,306			$	64,824			$	379

(1) Loan Purchase Commitments are presented net, and may have an asset or liability beginning or ending balance.

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 December 31, 2014, 2013, and 2012. Gains or losses incurred on assets or liabilities sold, matured, called, or fully written down during the years ended December 31, 2014, 2013, and 2012 are not included in this presentation.

Portion of Net Gains (Losses) Attributable to Level 3 Assets and Liabilities Still Held at December 31, 2014, 2013, and 2012 Included in Net Income

		Included in Net Income Years Ended December 31,
(In Thousands)		2014				2013				2012
Assets
Residential loans, at fair value		$	16,512			$	(290	)		$	11,725
Commercial loans, at fair value			3,357				1,501				—
Trading securities			(25,216	)			32,496				(14,076	)
Available-for-sale securities			(434	)			(1,108	)			(2,509	)
MSRs			(15,239	)			14,196				(1,571	)
Loan purchase commitments			1,119				—				—
Liabilities
Loan purchase commitments			—				(379	)			—
Commercial secured borrowing			2,033				—				—

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 December 31, 2014 and 2013. 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 December 31, 2014 and 2013.

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

December 31, 2014 (In Thousands)		Carrying Value				Fair Value Measurements Using												Gain (Loss) for Year Ended December 31, 2014
						Level 1				Level 2				Level 3
Assets
Residential loans, at lower of cost or fair value		$	1,104			$	—			$	—			$	1,104			$	(1	)
REO			2,069				—				—				2,069				(320	)
Liabilities
Guarantee obligation			7,201				—				—				7,201				—

December 31, 2013 (In Thousands)		Carrying Value				Fair Value Measurements Using												Gain (Loss) for Year Ended December 31, 2013
						Level 1				Level 2				Level 3
Assets
Residential loans, at lower of cost or fair value		$	1,145			$	—			$	—			$	1,145			$	—
REO			1,518				—				—				1,518				(270	)

Market Valuation Adjustments

The following table presents the components of market valuation adjustments, net, recorded in our consolidated statements of income for the years ended December 31, 2014, 2013, and 2012.

Market Valuation Adjustments

		Years Ended December 31,
(In Thousands)		2014				2013				2012
Mortgage banking activities
Residential loans, at fair value		$	51,256			$	(10,493	)		$	37,762
Commercial loans, at fair value			20,788				8,694				—
Sequoia IO securities			(23,839	)			42,451				(11,702	)
Risk management derivatives, net			(31,167	)			51,162				(10,609	)
Loan purchase and forward sale commitments			13,891				(399	)			—
Total mortgage banking activities(1)			30,929				91,415				15,451
MSRs			(21,081	)			11,995				(2,014	)
Other
Residential loans, at lower of cost or fair value		$	56			$	38			$	623
Commercial loans, at fair value			—				—				241
Residential loans held-for-investment, at fair value			(697	)			—				—
Trading securities			(358	)			(3,525	)			97,867
Impairments on AFS securities			(565	)			(1,833	)			(2,509	)
REO			(894	)			(612	)			(344	)
Other derivative instruments, net			(7,792	)			223				(12,581	)
ABS issued - Acacia			—				—				(81,758	)
Other			104				—				—
Total other			(10,146	)			(5,709	)			1,539
Total Market Valuation Adjustments, Net		$	(298	)		$	97,701			$	14,976

(1) Income from mortgage banking activities presented above does not include fee income or provisions for repurchases that is a component of mortgage banking activities presented on our consolidated statements of income as these amounts do 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

December 31, 2014 (Dollars in Thousands)		Fair Value				Unobservable Input		Range		Weighted Average
Assets
Residential loans, at fair value:
Jumbo fixed rate loans priced to securitization or to whole loan market and uncommitted to sell		$	1,231,823			IO discount rate		5 - 8%			7	%
						Prepayment rate		10 - 12%			11	%
						Senior credit spread		300 - 300 bps			300	bps
						Subordinate credit spread		326 - 326 bps			326	bps
						Credit support		8 - 8%			8	%
						Whole loan credit spread		290 - 425 bps			411	bps
Jumbo hybrid loans priced to whole loan market and uncommitted to sell			150,065			Prepayment rate		15  - 15%			15	%
						Credit spread		120 - 170 bps			127	bps
Jumbo loans priced to whole loan market and committed to sell			296,096			Committed Sales Price		$102 - 103		$	103
Residential loans, held-for-sale			1,104			Loss severity		13 - 30%			20	%
Commercial loans, at fair value			237,496			Credit spread		157 - 163 bps			161	bps
						Credit support		23 - 25%			24	%
Trading and AFS securities			1,379,230			Discount rate		4 - 12%			6	%
						Prepayment speed		1 - 35%			12	%
						Default rate		0 - 35%			8	%
						Loss severity		20 - 64%			34	%
						Credit support		0 - 48%			5	%
Guarantee asset			7,201			Discount rate		11 - 11%			11	%
						Prepayment speed		5 - 27%			11	%
MSRs			139,293			Discount rate		8 - 11%			10	%
						Prepayment rate		4 - 60%			12	%
						Per loan annual cost to service		$72 - 82		$	77
REO			2,069			Loss severity		0 - 100%			39	%
Loan purchase commitments, net (1)			1,119			MSR Multiple		0 - 6x			4x
						Pullthrough rate		56 - 99%			83	%
Liabilities
Commercial secured financing			66,707			Credit spread		161 - 161 bps			161	bps
						Credit support		23 - 23%			23	%

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

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