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, 2017 and December 31, 2016.

Table 8.1 – Fair Value of MSRs and Aggregate Principal Amounts of Associated Loans



	March 31, 2017				December 31, 2016
(In Thousands)	MSR Fair Value		Associated Principal		MSR Fair Value		Associated Principal
Mortgage Servicing Rights
Conforming Loans	$	44,414	$	3,799,528	$	58,523	$	4,989,720
Jumbo Loans	66,599		5,982,794		60,003		5,467,169
Total Mortgage Servicing Rights	$	111,013	$	9,782,322	$	118,526	$	10,456,889

The following table presents activity for MSRs for the three months ended March 31, 2017 and 2016.

Table 8.2 – Activity for MSRs



	Three Months Ended March 31,
(In Thousands)	2017			2016
Balance at beginning of period	$	118,526		$	191,976
Additions	7,485			8,807
Sales	(11,928		)	(29,559		)
Changes in fair value due to:
Changes in assumptions ⁽¹⁾	(657		)	(38,328		)
Other changes ⁽²⁾	(2,413		)	(6,276		)
Balance at End of Period	$	111,013		$	126,620


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


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

During the three months ended March 31, 2017, we sold conforming MSRs with a fair value of $12 million. In addition, subsequent to March 31, 2017, we entered into an agreement to sell most of the remainder of our $44 million conforming MSR portfolio and we expect the transaction to settle in the second quarter of 2017.

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, 2017.

Table 8.3 – MSR Additions



(In Thousands)	Three Months Ended March 31, 2017
	MSR Fair Value		Associated Principal
Jumbo MSR additions:
From securitization	$	7,123	$	654,605
From loan sales	263		31,658
Total jumbo MSR additions	7,386		686,263
Conforming MSR additions:
From purchases	$	99	$	19,071
Total MSR Additions	$	7,485	$	705,334

The following table presents the components of our MSR income for the three months ended March 31, 2017 and 2016.

Table 8.4 – Components of MSR Income, net



	Three Months Ended March 31,
(In Thousands)	2017			2016
Servicing income	$	6,907		$	11,684
Cost of sub-servicer	(1,380		)	(2,038		)
Net servicing fee income	5,527			9,646
Market valuation changes of MSRs	(3,070		)	(44,604		)
Market valuation changes of associated derivatives	(749		)	41,057
MSR provision for repurchases	5			182
MSR Income, Net	$	1,713		$	6,281