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 June 30, 2017 and December 31, 2016.

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



	June 30, 2017				December 31, 2016
(In Thousands)	MSR Fair Value		Associated Principal		MSR Fair Value		Associated Principal
Mortgage Servicing Rights
Conforming Loans	$	686	$	67,291	$	58,523	$	4,989,720
Jumbo Loans	63,084		5,815,172		60,003		5,467,169
Total Mortgage Servicing Rights	$	63,770	$	5,882,463	$	118,526	$	10,456,889

The following table presents activity for MSRs for the three and six months ended June 30, 2017 and 2016.

Table 8.2 – Activity for MSRs



	Three Months Ended June 30,						Six Months Ended June 30,
(In Thousands)	2017			2016			2017			2016
Balance at beginning of period	$	111,013		$	126,620		$	118,526		$	191,976
Additions	216			10,691			7,701			19,498
Sales	(41,038		)	—			(52,966		)	(29,559		)
Changes in fair value due to:
Changes in assumptions ⁽¹⁾	(3,356		)	(21,480		)	(4,013		)	(59,808		)
Other changes ⁽²⁾	(3,065		)	(5,785		)	(5,478		)	(12,061		)
Balance at End of Period	$	63,770		$	110,046		$	63,770		$	110,046


(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 and six months ended June 30, 2017, we sold conforming MSRs with a fair value of $41 million and $53 million, respectively.

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 and six months ended June 30, 2017.

Table 8.3 – MSR Additions



(In Thousands)	Three Months Ended June 30, 2017				Six Months Ended June 30, 2017
	MSR Fair Value		Associated Principal		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	216		35,261		315		54,332
Total MSR Additions	$	216	$	35,261	$	7,701	$	740,595

The following table presents the components of our MSR income for the three and six months ended June 30, 2017 and 2016.

Table 8.4 – Components of MSR Income, net



	Three Months Ended June 30,						Six Months Ended June 30,
(In Thousands)	2017			2016			2017			2016
Servicing income	$	6,511		$	10,572		$	13,418		$	22,256
Cost of sub-servicer	(659		)	(1,702		)	(2,039		)	(3,740		)
Net servicing fee income	5,852			8,870			11,379			18,516
Market valuation changes of MSRs	(6,421		)	(27,265		)	(9,491		)	(71,869		)
Market valuation changes of associated derivatives	3,040			21,153			2,291			62,210
MSR provision for repurchases	307			25			312			207
MSR Income, Net	$	2,778		$	2,783		$	4,491		$	9,064