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Note 8 MORTGAGE SERVICING
 3 Months Ended
Mar. 31, 2012
Transfers and Servicing of Financial Assets [Text Block]

Note 8       Mortgage Servicing


Servicing Assets. Servicing assets, or MSRs, are comprised of a single residential class. MSRs are an intangible asset representing the right to service a portfolio of mortgage loans. We generally obtain MSRs by purchasing them from the owners of the mortgage loans. The following table summarizes the activity in the carrying value of residential servicing assets for the three months ended March 31, 2012:


Balance at December 31, 2011   $ 293,152  
Purchases     —  
Increase in impairment valuation allowance     (204 )
Amortization (1)     (15,232 )
Balance at March 31, 2012   $ 277,716  

(1) In the Consolidated Statement of Operations, Amortization of mortgage servicing rights is reported net of the amortization of servicing liabilities and includes the amount of charges we recognized to increase servicing liability obligations.

As disclosed in Note 4, we sold certain Rights to MSRs related to serviced loans with a UPB of approximately $15.2 billion on March 5, 2012 as part of the HLSS Transaction. The sales price of $62,458 represents the fair value of the MSRs at the time of the sale. We accounted for this sale as a financing because we retained legal title to the MSRs. As a result, we did not derecognize the MSRs, and we established a liability equal to the sales price. If and when the third party consents are obtained, legal title will transfer to HLSS, and we expect to record a sale with the gain deferred and derecognize the MSRs. Until such time, we continue to recognize the full amount of servicing revenue and amortization of the MSRs. The carrying value of the MSRs at March 31, 2012 was $51,298.


The following table presents the composition of our servicing and subservicing portfolios by type of property serviced as measured by UPB. The servicing portfolio represents purchased MSRs while subservicing generally represents all other MSRs.


UPB of Assets Serviced:   Residential     Commercial     Total  
March 31, 2012:                        
Servicing   $ 75,930,077     $ —     $ 75,930,077  
Subservicing     22,510,389       367,356       22,877,745  
    $ 98,440,466     $ 367,356     $ 98,807,822  
December 31, 2011:                        
Servicing   $ 78,675,160     $ —     $ 78,675,160  
Subservicing     23,524,062       290,863       23,814,925  
    $ 102,199,222     $ 290,863     $ 102,490,085  

Residential assets serviced consist principally of mortgage loans, primarily subprime, but also include foreclosed real estate. Residential assets include small-balance commercial assets that are managed using the REALServicing™ application. Commercial assets subserviced consist of large-balance foreclosed real estate. Assets serviced for others are not included on our Consolidated Balance Sheet.


Custodial accounts, which hold funds representing collections of principal and interest we receive from borrowers, are held in escrow by an unaffiliated bank and excluded from our Consolidated Balance Sheet. Custodial accounts amounted to approximately $523,800 and $555,500 at March 31, 2012 and December 31, 2011, respectively.


Valuation Allowance for Impairment. During 2008, we established a valuation allowance for impairment of $3,624 on the high-loan-to-value stratum of our MSRs as the estimated fair value was less than the carrying value. Changes in the valuation allowance for impairment are reflected in Servicing and origination expenses in our Consolidated Statement of Operations. Net of the valuation allowance of $2,494 and $2,290, the carrying value of this stratum was $204 and $214 at March 31, 2012 and December 31, 2011, respectively. For all other strata, the fair value exceeded the carrying value at March 31, 2012.


The estimated fair value of residential MSRs at March 31, 2012 and December 31, 2011 was $316,078 and $340,015, respectively.


Servicing Liabilities. Servicing liabilities are included in Other liabilities. See Note 14 for additional information.