Note 6 — 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 years ended December 31:



	2015			2014			2013
Beginning balance	$	401,120		$	503,753		$	426,480
Originations and purchases	3,944,509			4,967,767			8,106,742
Proceeds from sales	(4,061,217		)	(5,001,935		)	(7,999,235		)
Principal collections	(8,647		)	(13,300		)	(653		)
Transfers to loans held for investment - reverse mortgages	—			(110,874		)	—
Gain (loss) on sale of loans	42,053			49,533			(26,981		)
Other (1)	(8,764		)	6,176			(2,600		)
Ending balance	$	309,054		$	401,120		$	503,753


(1)	Other includes the increase (decrease) in fair value of $(9.1) million, $6.2 million and $(3.7) million for 2015, 2014 and 2013, respectively.

At December 31, 2015, loans held for sale, at fair value, with a UPB of $290.0 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 years ended December 31:



	2015			2014			2013
Beginning balance	$	87,492		$	62,907		$	82,866
Purchases	1,056,172			2,462,573			1,632,390
Proceeds from sales	(1,001,939		)	(2,067,965		)	(1,036,316		)
Principal payments	(53,400		)	(262,196		)	(432,423		)
Transfers to accounts receivable	(53,468		)	(114,675		)	(218,629		)
Transfers to real estate owned	(18,594		)	(8,808		)	(4,775		)
Gain on sale of loans	43,449			31,853			35,087
Decrease (increase) in valuation allowance	35,018			(18,965		)	(10,644		)
Other	10,262			2,768			15,351
Ending balance (1) (2)	$	104,992		$	87,492		$	62,907


(1)	At December 31, 2015, 2014 and 2013, the balances include $85.9 million, $42.0 million and $43.1 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.

(2)

At December 31, 2015, 2014 and 2013, the balances are net of valuation allowances of $14.7 million, $49.7 million and $30.7 million, respectively. The decrease in the valuation allowance during 2015 includes $37.8 million resulting from the reversal of the allowance associated with loans that were sold during the year. The increase in the valuation allowance during 2014 and 2013 includes $20.4 million and $15.7 million, respectively, resulting from transfers of 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.

At December 31, 2015, loans held for sale, at lower of cost or fair value, with a UPB of $45.5 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 and related advances to a subsidiary of NRZ for $612.3 million ($556.6 million for the loans and $55.7 million for the related servicing advances). We recognized a gain of $7.2 million on the sale of the loans. Following the initial transactions, we sold an additional $13.1 million of advances to a subsidiary of NRZ. We had recorded these advances in connection with the subsequent servicing of the sold loans.

On May 1, 2014, we purchased a second group of delinquent FHA-insured loans with a UPB of $451.0 million through the Ginnie Mae EBO program for $479.6 million, including delinquent interest. On May 2, 2014, we sold the loans to an unrelated third party for $462.5 million and recognized a gain of $1.3 million, including the value assigned to the retained MSRs. Separately, we sold $20.2 million of the advances related to these loans to a subsidiary of NRZ.

The sales of advances to the NRZ subsidiaries did not qualify for sales treatment and were accounted for as a financing.

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. In May 2015, we recognized a gain of $7.2 million on sales of a second group of loans with a total UPB of $33.0 million to an unrelated third party. We had repurchased these loans under the representation and warranty 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 years ended December 31:



	2015			2014			2013
Gain on sales of loans	$	152,970		$	168,449		$	82,518
Change in fair value of IRLCs	14			(25,822		)	523
Change in fair value of loans held for sale	(8,525		)	10,489			(1,709		)
Gain (loss) on economic hedge instruments	(8,675		)	(17,214		)	42,732
Other	(815		)	(1,605		)	(2,370		)
	$	134,969		$	134,297		$	121,694

Gain on loans held for sale, net include $36.0 million, $39.8 million and $74.8 million for 2015, 2014 and 2013, 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 $23.0 million, $54.7 million and $35.1 million recorded during 2015, 2014 and 2013, 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 transfers of reverse mortgages into Ginnie Mae guaranteed securitizations are also included in Gains on loans held for sale, net and amounted to $112.6 million, $72.7 million and $41.7 million during 2015, 2014 and 2013, respectively.