

(In Thousands)	June 30, 2019		December 31, 2018
Servicer advance investments	$	259,222	$	300,468
Mortgage servicing rights	47,396		60,281
Excess MSRs	33,620		27,312
Investment in multifamily loan fund	28,678		—
Other notes receivable	3,214		—
Participation in loan warehouse facility	—		39,703
Investment in 5 Arches	—		10,754
Total Other Investments	$	372,130	$	438,518

In 2018, we and a third-party co-investor, through two partnerships (“SA Buyers”) consolidated by us, purchased the outstanding servicer advances and excess MSRs related to a portfolio of legacy residential mortgage-backed securitizations serviced by the co-investor (See Note 4 for additional information regarding the transaction). At June 30, 2019, we had funded $66 million of capital to the SA Buyers and funded the remaining $6 million of capital in July 2019 (see Note 16 for additional detail).

Our servicer advance investments (owned by the consolidated SA Buyers) are comprised of outstanding servicer advance receivables, the requirement to purchase all future servicer advances made with respect to a specified pool of residential mortgage loans, and a portion of the mortgage servicing fees from the underlying loan pool. A portion of the remaining mortgage servicing fees from the underlying loan pool are paid directly to the third-party servicer for the performance of servicing duties and a portion is paid to excess MSRs that we own as a separate investment. We hold our servicer advance investments at our taxable REIT subsidiary.

Servicer advances are non-interest bearing and are a customary feature of residential mortgage securitization transactions. Servicer advances are generally reimbursable cash payments made by a servicer when the borrower fails to make scheduled payments due on a residential mortgage loan or to support the value of the collateral property. Servicer advances typically fall into three categories:

Servicer advances are generally permitted to be repaid from amounts received with respect to the related residential mortgage loan, including payments from the borrower or amounts received from the liquidation of the property securing the loan. Residential mortgage servicing agreements generally require a servicer to make advances in respect of serviced residential mortgage loans unless the servicer determines in good faith that the advance would not be ultimately recoverable from the proceeds of the related residential mortgage loan or the mortgaged property.

At June 30, 2019, our servicer advance investments had a carrying value of $259 million and were associated with a portfolio of residential mortgage loans with an unpaid principal balance of $8.34 billion. The outstanding servicer advance receivables associated with this investment were $237 million at June 30, 2019, which were financed with short-term non-recourse securitization debt (see Note 13 for additional detail on this debt). The servicer advance receivables were comprised of the following types of advances at June 30, 2019 and December 31, 2018:



(In Thousands)	June 30, 2019		December 31, 2018
Principal and interest advances	$	91,707	$	144,336
Escrow advances (taxes and insurance advances)	95,071		94,828
Corporate advances	49,854		47,614
Total Servicer Advance Receivables	$	236,632	$	286,778

We account for our servicer advance investments at fair value and during the three and six months ended June 30, 2019, we recorded $3 million and $5 million of interest income associated with these investments, respectively, and recorded net market valuation gains of $0.4 million and $1 million, respectively, through Investment fair value changes, net in our consolidated statements of income.

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 majority of our investments in MSRs were made through the retention of servicing rights associated with the residential jumbo mortgage loans that we acquired and subsequently transferred to third parties. We hold our MSR investments at our taxable REIT subsidiary.

At June 30, 2019 and December 31, 2018, our MSRs had a fair value of $47 million and $60 million, respectively, and were associated with loans with an aggregate principal balance of $4.83 billion and $4.93 billion, respectively.



	Three Months Ended June 30,						Six Months Ended June 30,
(In Thousands)	2019			2018			2019			2018
Balance at beginning of period	$	55,284		$	66,496		$	60,281		$	63,598
Additions	764			—			868			—
Sales	—			(1,077		)	—			(1,077		)
Changes in fair value due to:
Changes in assumptions ⁽¹⁾	(6,555		)	943			(10,141		)	5,289
Other changes ⁽²⁾	(2,097		)	(1,688		)	(3,612		)	(3,136		)
Balance at End of Period	$	47,396		$	64,674		$	47,396		$	64,674



	Three Months Ended June 30,						Six Months Ended June 30,
(In Thousands)	2019			2018			2019			2018
Servicing income	$	3,850		$	3,802		$	7,460		$	7,597
Cost of sub-servicer	(268		)	(338		)	(771		)	(930		)
Net servicing fee income	3,582			3,464			6,689			6,667
Market valuation changes of MSRs	(8,652		)	(745		)	(13,753		)	2,147
Market valuation changes of associated derivatives	6,517			(1,122		)	8,768			(6,261		)
MSR reversal of provision for repurchases	207			277			207			277
MSR Income, Net ⁽¹⁾	$	1,654		$	1,874		$	1,911		$	2,830

In association with our servicer advance investments described above, in the fourth quarter of 2018, we (through our consolidated SA Buyers) also invested in excess MSRs associated with the same portfolio of legacy residential mortgage-backed securitizations. Additionally, beginning in 2018, we invested in excess MSRs associated with specified pools of multifamily loans. We account for our excess MSRs at fair value and during the three and six months ended June 30, 2019, we recognized $2 million and $4 million of interest income, respectively, through Other interest income, and recorded net market valuation losses of $0.1 million and $0.5 million, respectively, through Investment fair value changes, net on our consolidated statements of income.

In January 2019, we invested in a limited partnership created to acquire floating rate, light-renovation multifamily loans from Freddie Mac. We committed to fund an aggregate of $78 million to the partnership, and have funded approximately $29 million at June 30, 2019. Freddie Mac is providing a debt facility to finance loans purchased by the partnership. After the partnership's acquisitions have reached a specific threshold, the partnership and Freddie Mac may agree to include the related loans in a Freddie Mac-sponsored securitization and the limited partners may acquire the subordinate securities issued in any such securitization.

We account for our ownership interest in this partnership using the equity method of accounting as we are able to exert significant influence over but do not control the activities of the investee. At June 30, 2019, the carrying amount of our investment in the partnership was $29 million. We have elected to record our share of earnings or losses from this investment on a one-quarter lag. During the three months ended June 30, 2019, we recorded $0.1 million of losses associated with this investment in Other income, net on our consolidated statements of income.

In the second quarter of 2018, we invested in a subordinated participation in a revolving mortgage loan warehouse credit facility of one of our loan sellers. We accounted for this subordinated participation interest as a loan receivable at amortized cost, and all associated interest income was recorded as a component of Other interest income in our consolidated statements of income. During the first quarter of 2019, our agreement associated with this investment was terminated and the balance outstanding under this agreement was repaid.

In May 2018, we acquired a 20% minority interest in 5 Arches for $10 million, which included a one-year option to purchase all remaining equity in the company for a combination of cash and stock totaling $40 million. In March 2019, we closed on our option to acquire the remaining 80% interest in 5 Arches. See Note 2 for discussion of this acquisition.

During 2018 and through February 28, 2019, we accounted for our minority ownership interest in 5 Arches using the equity method of accounting as we were able to exert significant influence over but did not control the activities of the investee. During the period from January 1, 2019 to February 28, 2019, we recorded $0.3 million of gross income associated with this investment and, including amortization of certain intangible assets, recorded $0.1 million of net earnings in Other income, net on our consolidated statements of income.