Mortgage Servicing Rights

We invest in mortgage servicing rights associated with residential mortgage loans and contract with a licensed sub-servicer to perform all servicing functions for these loans. The following table presents the fair value of MSRs and the aggregate principal amounts of associated loans as of September 30, 2015 and December 31, 2014.

Table 9.1 – Fair Value of MSRs and Aggregate Principal Amounts of Associated Loans



	September 30, 2015				December 31, 2014
(In Thousands)	MSR Fair Value		Associated Principal		MSR Fair Value		Associated Principal
Mortgage Servicing Rights
Conforming Loans	$	108,593	$	10,790,874	$	81,301	$	7,705,146
Jumbo Loans	54,133		5,943,725		57,992		5,962,784
Total Mortgage Servicing Rights	$	162,726	$	16,734,599	$	139,293	$	13,667,930

The following table presents activity for MSRs for the three and nine months ended September 30, 2015 and 2014.

Table 9.2 – Activity for MSRs



	Three Months Ended September 30,						Nine Months Ended September 30,
(In Thousands)	2015			2014			2015			2014
Balance at beginning of period	$	168,462		$	71,225		$	139,293		$	64,824
Additions	22,760			61,606			73,976			76,272
Sales	—			—			(18,206		)	—
Changes in fair value due to:
Changes in assumptions ⁽¹⁾	(23,786		)	4,323			(18,653		)	(318		)
Other changes ⁽²⁾	(4,710		)	(2,002		)	(13,684		)	(5,626		)
Balance at End of Period	$	162,726		$	135,152		$	162,726		$	135,152


(1)	Primarily reflects changes in prepayment assumptions due to changes in market interest rates.


(2)	Represents changes due to realization of expected cash flows.

We make investments in MSRs through the retention of servicing rights associated with the residential mortgage loans that we acquire and subsequently transfer to third parties or through the direct acquisition of MSRs sold by third parties. We hold our MSR investments at a taxable REIT subsidiary. The following table details the retention and purchase of MSRs during the three and nine months ended September 30, 2015.

Table 9.3 – MSR Additions



(In Thousands)	Three Months Ended September 30, 2015				Nine Months Ended September 30, 2015
	MSR Fair Value		Associated Principal		MSR Fair Value		Associated Principal
Jumbo MSR additions:
From securitization	$	—	$	—	$	7,874	$	835,254
From loan sales	237		21,775		501		48,042
Total jumbo MSR additions	237		21,775		8,375		883,296
Conforming MSR additions:
From loan sales	$	15,201	$	1,384,126	$	43,901	$	4,085,655
From purchases	7,322		728,370		21,700		2,072,284
Total conforming MSR additions	22,523		2,112,496		65,601		6,157,939
Total MSR Additions	$	22,760	$	2,134,271	$	73,976	$	7,041,235

The following table presents the components of our MSR income.

Table 9.4 – Components of MSR Income (Loss), net



	Three Months Ended September 30,						Nine Months Ended September 30,
(In Thousands)	2015			2014			2015			2014
Servicing income
Income	$	10,028		$	4,590		$	28,199		$	12,287
Cost of sub-servicer	(1,313		)	(437		)	(3,704		)	(1,040		)
Net servicing income	8,715			4,153			24,495			11,247
Market valuation changes of MSRs	(28,496		)	2,321			(32,337		)	(5,944		)
Market valuation changes of associated derivatives ⁽¹⁾	23,551			—			1,736			—
MSR provision for repurchases	(221		)	(653		)	(439		)	(653		)
MSR Income (Loss), Net	$	3,549		$	5,821		$	(6,545	)	$	4,650


(1)	In the second quarter of 2015, we began to identify specific derivatives used to hedge the exposure of our MSRs to changes in market interest rates. See Note 2 for additional detail.