Note 6 — Loans Held for Sale

Loans held for sale are comprised of the following at December 31:



	2013		2012
Loans held for sale - fair value	$	503,753	$	426,480
Loans held for sale - lower of cost or fair value	62,907		82,866
	$	566,660	$	509,346

Loans Held for Sale - Fair Value

Loans held for sale, at fair value, represent residential forward and reverse mortgage loans originated or purchased and held until sold to secondary market investors, such as GSEs or other third parties. The following table summarizes the activity in the balance of Loans held for sale, at fair value, during the years ended December 31:



	2013			2012
Beginning balance	$	426,480		$	—
Originations and purchases (1)	8,106,742			670,147
Proceeds from sales	(7,999,235		)	(241,960		)
Gain (loss) on sale of loans (2)	(26,981		)	3,889
Other	(3,253		)	(5,596		)
Ending balance	$	503,753		$	426,480


(1)	Purchases include $60.0 million of reverse mortgages acquired in the Liberty Acquisition in 2013 and $558.7 million of forward mortgages acquired in the Homeward Acquisition in 2012. See Note 3 — Business Acquisitions for additional information.


(2)	Includes gains of $41.7 million recorded during 2013 to adjust Loans Held for investment - reverse mortgages to fair value.

At December 31, 2013, Loans Held for Sale - Fair Value with a UPB of $471.2 million were pledged to secure Lending segment warehouse lines of credit. See Note 15 — Borrowings for additional information regarding these facilities.

Loans Held for Sale - Lower of Cost or Fair Value

Loans held for sale, at lower of cost or fair value, include residential loans that we do not intend to hold to maturity. The following table summarizes the activity in the balance of Loans held for sale, at lower of cost or fair value, during the years ended December 31:



	2013			2012			2011
Beginning balance	$	82,866		$	20,633		$	25,803
Purchases	1,632,390			65,756			—
Proceeds from sales	(1,036,316		)	—			—
Principal payments	(432,423		)	(1,474		)	(1,468		)
Transfers to accounts receivable	(218,629		)	—			—
Transfers to real estate owned	(4,775		)	(999		)	(2,599		)
Gain on sale of loans	35,087			—			—
Decrease (increase) in valuation allowance	(10,644		)	568			354
Modifications, charge offs and other	15,351			(1,618		)	(1,457		)
Ending balance	$	62,907		$	82,866		$	20,633

The balances at December 31, 2013, 2012 and 2011 are net of valuation allowances of $30.7 million, $14.7 million and $14.3 million, respectively. The balance at December 31, 2013 includes $43.1 million of loans that we were required to repurchase from Ginnie Mae guaranteed securitizations as part of our servicing obligations. Repurchased loans are modified or otherwise remediated through loss mitigation activities or are reclassified to receivables. The balance at December 31, 2012 includes non-performing mortgage loans with a carrying value of $65.4 million that we acquired in December 2012 and sold to Altisource Residential, LP in February 2013 for an insignificant gain.

At December 31, 2013, Loans Held for Sale - Lower of Cost or Fair Value with a UPB of $18.0 million were pledged to secure a warehouse line of credit. See Note 15 — Borrowings for additional information regarding this facility.

Gain (Loss) on Loans Held for Sale, Net

The following table summarizes the activity in Gain on loans held for sale, net, during the years ended December 31:



	2013			2012			2011
Gain (loss) on sales of loans (1)	$	82,518		$	6,797		$	(2	)
Change in fair value of IRLCs	523			2			—
Change in fair value of loans held for sale	(1,709		)	(5,462		)	—
Gain (loss) on economic hedge instruments	42,732			(1,075		)	—
Other	(2,370		)	(47		)	—
	$	121,694		$	215		$	(2	)


(1)	Includes gains of $74.8 million and $2.9 million for 2013 and 2012, respectively, representing the value assigned to MSRs retained on sales of loans. Also includes gains of $35.1 million recorded during 2013 on sales of repurchased loans into Ginnie Mae guaranteed securitizations.