Mortgage Servicing Rights

We invest in mortgage servicing rights associated with residential mortgage loans and contract with licensed sub-servicers 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 March 31, 2016 and December 31, 2015.

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



	March 31, 2016				December 31, 2015
(In Thousands)	MSR Fair Value		Associated Principal		MSR Fair Value		Associated Principal
Mortgage Servicing Rights
Conforming Loans	$	86,591	$	9,344,652	$	133,838	$	12,560,533
Jumbo Loans	40,029		5,479,353		58,138		5,705,939
Total Mortgage Servicing Rights	$	126,620	$	14,824,005	$	191,976	$	18,266,472

The following table presents activity for MSRs for the three months ended March 31, 2016 and 2015.

Table 9.2 – Activity for MSRs



	Three Months Ended March 31,
(In Thousands)	2016			2015
Balance at beginning of period	$	191,976		$	139,293
Additions	8,807			18,754
Sales	(29,559		)	(18,206		)
Changes in fair value due to:
Changes in assumptions ⁽¹⁾	(38,328		)	(14,036		)
Other changes ⁽²⁾	(6,276		)	(5,481		)
Balance at End of Period	$	126,620		$	120,324


(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 our taxable REIT subsidiary. The following table details the retention and purchase of MSRs during the three months ended March 31, 2016.

Table 9.3 – MSR Additions



(In Thousands)	Three Months Ended March 31, 2016
	MSR Fair Value		Associated Principal
Jumbo MSR additions:
From loan sales	$	46	$	6,519
Total jumbo MSR additions	46		6,519
Conforming MSR additions:
From loan sales	$	3,364	$	314,518
From purchases	5,397		549,034
Total conforming MSR additions	8,761		863,552
Total MSR Additions	$	8,807	$	870,071

The following table presents the components of our MSR income.

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



	Three Months Ended March 31,
(In Thousands)	2016			2015
Servicing income
Income	$	11,684		$	9,716
Cost of sub-servicer	(2,038		)	(1,229		)
Net servicing income	9,646			8,487
Market valuation changes of MSRs	(44,604		)	(19,517		)
Market valuation changes of associated derivatives ⁽¹⁾	41,057			—
MSR provision for repurchases	182			106
MSR Income (Loss), Net	$	6,281		$	(10,924	)


(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.