Note 5 – Loans Held for Sale

Loans Held for Sale - Fair Value

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



	2015			2014
Beginning balance	$	401,120		$	503,753
Originations and purchases	922,254			1,416,797
Proceeds from sales	(990,634		)	(1,481,403		)
Transfers to loans held for investment - reverse mortgages	—			(110,874		)
Gain on sale of loans	15,265			12,863
Other	(8,497		)	(2,908		)
Ending balance	$	339,508		$	338,228

At March 31, 2015, loans held for sale, at fair value with a UPB of $311.0 million were pledged to secure warehouse lines of credit in our Lending segment.

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 during the three months ended March 31:



	2015			2014
Beginning balance	$	87,492		$	62,907
Purchases	113,896			959,756
Proceeds from sales	(140,948		)	(835,786		)
Principal collections	(13,863		)	(96,300		)
Transfers to accounts receivable	(16,572		)	(66,187		)
Transfers to real estate owned	(2,296		)	(648		)
Gain on sale of loans	17,271			23,031
Decrease (increase) in valuation allowance	19,728			(4,163		)
Other	3,781			2,865
Ending balance (1) (2)	$	68,489		$	45,475

(1)

The balances at March 31, 2015 and March 31, 2014 are net of valuation allowances of $29.9 million and $36.0 million, respectively. The decrease in the valuation allowance for the three months ended March 31, 2015 resulted principally from the reversal of $22.5 million of the allowance that was associated with loans that were sold to an unrelated third party in March 2015. This decrease was partly offset by an increase of $0.9 million in the allowance resulting from transfers from the liability for indemnification obligations for the initial valuation adjustment that we recognized on certain loans that we repurchased from Fannie Mae and Freddie Mac guaranteed securitizations. For the three months ended March 31, 2014 the increase in the allowance was principally the result of $5.4 million of such transfers from the liability for indemnification obligations.


(2)	The balances at March 31, 2015 and March 31, 2014 include $43.9 million and $6.1 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.

At March 31, 2015, Loans held for sale, at lower of cost or fair value with a UPB of $33.1 million were pledged to secure a warehouse line of credit in our Servicing segment.

In March 2014, we purchased delinquent FHA-insured loans with a UPB of $549.4 million out of Ginnie Mae guaranteed securitizations 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 plus delinquent interest (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 for $612.3 million ($556.6 million for the Ginnie Mae EBO Loans and $55.7 million for the related servicing advances). We recognized a gain of $7.2 million on the sale of the loans.

The sales of advances to HLSS Mortgage did not qualify for sales treatment and were accounted for as a financing. We refer to the purchase and sale of the Ginnie Mae EBO Loans and the sale of the related advances to HLSS Mortgage as the Ginnie Mae EBO Transactions.

In March 2015, we recognized a gain of $12.9 million on sales of loans with a total UPB of $42.7 million to an unrelated third party. We had repurchased these loans under the representation, warranty and indemnification provisions of our contractual obligations to the GSEs as primary servicer of the loans.

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:



	2015			2014
Gain on sales of loans	$	51,400		$	54,993
Change in fair value of IRLCs	(2,233		)	986
Change in fair value of loans held for sale	(4,008		)	1,800
Loss on economic hedge instruments	(427		)	(13,610		)
Other	(228		)	(182		)
	$	44,504		$	43,987

Gains on loans held for sale, net include $8.5 million and $11.6 million for the three months ended March 31, 2015 and 2014, respectively, representing the value assigned to MSRs retained on transfers of forward loans.

Also included in Gains on loans held for sale, net are gains of $4.3 million and $22.8 million recorded during the three months ended March 31, 2015 and 2014, respectively, on sales of repurchased Ginnie Mae loans, which are carried at the lower of cost or fair value.

Fair value gains recognized in connection with sales of reverse mortgages into Ginnie Mae guaranteed securitizations are also included in Gains on loans held for sale, net and amounted to $25.6 million and $16.1 million for the three months ended March 31, 2015 and 2014, respectively.