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:



	2016			2015
Beginning balance	$	309,054		$	401,120
Originations and purchases	789,180			922,254
Proceeds from sales	(783,187		)	(990,634		)
Principal collections	(3,280		)	(2,667		)
Gain on sale of loans	7,646			15,265
Other (1)	2,326			(5,830		)
Ending balance	$	321,739		$	339,508


(1)	Other includes the increase (decrease) in fair value of $1.8 million and $(6.9) million for the three months ended March 31, 2016 and 2015, respectively.

At March 31, 2016, loans held for sale, at fair value with a UPB of $285.1 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 net balance during the three months ended March 31:



	2016			2015
Beginning balance	$	104,992		$	87,492
Purchases	421,896			113,896
Proceeds from sales	(372,583		)	(140,948		)
Principal collections	(6,453		)	(13,863		)
Transfers to accounts receivable	(61,212		)	(16,572		)
Transfers to real estate owned	(1,224		)	(2,296		)
Gain on sale of loans	5,010			17,271
Decrease (increase) in valuation allowance	(3,335		)	19,728
Other	(21		)	3,781
Ending balance (1)	$	87,070		$	68,489


(1)	At March 31, 2016 and March 31, 2015, the balances include $55.5 million and $43.9 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.

The change in the valuation allowance during the three months ended March 31 is as follows:



	2016			2015
Beginning balance	$	14,658		$	49,676
Provision	2,597			1,104
Transfer from liability for indemnification obligations	1,030			664
Sales of loans	—			(22,488		)
Other	(292		)	992
Ending balance	$	17,993		$	29,948

At March 31, 2016, Loans held for sale, at lower of cost or fair value with a UPB of $37.1 million were pledged to secure a warehouse line of credit in our Servicing segment.

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 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 three months ended March 31:



	2016			2015
Gain on sales of loans	$	17,939		$	51,400
Change in fair value of IRLCs	7,465			(2,233		)
Change in fair value of loans held for sale	3,521			(4,008		)
Loss on economic hedge instruments	(13,202		)	(427		)
Other	(151		)	(228		)
	$	15,572		$	44,504

Gain on loans held for sale, net include $6.5 million and $8.5 million for the three months ended March 31, 2016 and 2015, 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 $5.0 million and $4.3 million recorded during the three months ended March 31, 2016 and 2015, 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 $8.0 million and $25.6 million for the three months ended March 31, 2016 and 2015, respectively.