Note 6 — Loans Held for Sale

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 three months ended March 31:



	2014			2013
Beginning balance	$	503,753		$	426,480
Originations and purchases	1,416,797			2,462,531
Proceeds from sales	(1,481,403		)	(2,563,247		)
Transfers to loans held for investment - reverse mortgages	(110,874		)	—
Gain (loss) on sale of loans	12,863			(29,786		)
Other	(2,908		)	(464		)
Ending balance	$	338,228		$	295,514

At March 31, 2014, Loans held for sale, at fair value with a UPB of $314.0 million were pledged to secure warehouse lines of credit in our Lending segment. See Note 12 — 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 three months ended March 31:



	2014			2013
Beginning balance	$	62,907		$	82,866
Purchases	959,756			53,674
Proceeds from sales	(835,786		)	(66,868		)
Principal payments	(96,300		)	(460		)
Transfers to accounts receivable	(66,187		)	—
Gain on sale of loans	23,031			1,423
Increase in valuation allowance	(4,163		)	(7,269		)
Modifications, charge offs and other	2,217			(751		)
Ending balance	$	45,475		$	62,615

The balances at March 31, 2014 and March 31, 2013 are net of valuation allowances of $36.0 million and $21.9 million, respectively.

The balances at March 31, 2014 and 2013 include $6.1 million and $42.0 million, respectively, 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.

On March 3, 2014, we purchased severely delinquent FHA-insured loans with a UPB of $549.4 million out of Ginnie Mae securities under the terms of a conditional repurchase option whereby as servicer we have the right, but not the obligation, to repurchase delinquent loans at par (the Ginnie Mae early buy-out (EBO) program). Immediately after their purchase, we sold the loans (the Ginnie Mae EBO Loans) and related advances to HLSS Mortgage (the Ginnie Mae EBO Transaction) for $612.3 million ($556.4 million for the Ginnie Mae EBO Loans and $55.7 million for the servicing advances).

Gain on Loans Held for Sale, Net

The following table summarizes the activity in Gain on loans held for sale, net, during the three months ended March 31:



	2014			2013
Gain on sales of loans (1)(2)	$	54,993		$	(1,081	)
Change in fair value of IRLCs	986			(1,237		)
Change in fair value of loans held for sale	1,800			(440		)
Gain (loss) on economic hedge instruments	(13,610		)	10,189
Other	(182		)	(682		)
	$	43,987		$	6,749


(1)	Includes gains of $11.6 million and $28.7 million for the three months ended March 31, 2014 and 2013, respectively, representing the value assigned to MSRs retained on sales of loans. Also includes gains of $22.8 million recorded during the three months ended March 31, 2014 on sales of repurchased loans into Ginnie Mae guaranteed securitizations.


(2)	Includes gains of $16.1 million recorded during the three months ended March 31, 2014 in connection with sales of reverse mortgages into Ginnie Mae guaranteed securitizations.