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 nine months ended September 30:



	2016			2015
Beginning balance	$	309,054		$	401,120
Originations and purchases	3,141,205			3,119,457
Proceeds from sales	(3,167,640		)	(3,306,180		)
Principal collections	(10,995		)	(6,512		)
Gain on sale of loans	23,627			37,580
Other (1)	6,863			(9,556		)
Ending balance	$	302,114		$	235,909


(1)	Other includes the increase (decrease) in fair value of $1.0 million and $(9.9) million for the nine months ended September 30, 2016 and 2015, respectively.

At September 30, 2016, loans held for sale, at fair value with a UPB of $288.4 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 nine months ended September 30:



	2016			2015
Beginning balance	$	104,992		$	87,492
Purchases	1,434,059			769,631
Proceeds from sales	(1,295,101		)	(577,591		)
Principal collections	(20,151		)	(45,137		)
Transfers to accounts receivable	(199,047		)	(4,811		)
Transfers to real estate owned	(6,434		)	(18,479		)
Gain on sale of loans	18,259			38,327
Decrease in valuation allowance	4,637			37,998
Other	(3,563		)	3,633
Ending balance (1)	$	37,651		$	291,063


(1)	At September 30, 2016 and September 30, 2015, the balances include $28.1 million and $98.7 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 nine months ended September 30 is as follows:



	2016			2015
Beginning balance	$	14,658		$	49,676
Provision	2,100			542
Transfer from liability for indemnification obligations	2,306			1,140
Sales of loans	(8,699		)	(37,776		)
Other	(344		)	1,796
Ending balance	$	10,021		$	15,378

At September 30, 2016, Loans held for sale, at lower of cost or fair value with a UPB of $14.5 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. 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 periods ended September 30:



	Three Months						Nine Months
	2016			2015			2016			2015
Gain on sales of loans	$	40,707		$	34,038		$	77,732		$	130,425
Change in fair value of IRLCs	(2,523		)	4,956			4,148			3,944
Change in fair value of loans held for sale	(8,226		)	915			13,486			(5,893		)
Loss on economic hedge instruments	(4,051		)	(12,416		)	(25,677		)	(10,878		)
Other	(262		)	(195		)	(615		)	(664		)
	$	25,645		$	27,298		$	69,074		$	116,934

Gains on loans held for sale, net include $9.8 million and $25.3 million for the three and nine months ended September 30, 2016, respectively, representing the value assigned to MSRs retained on transfers of forward loans. For the three and nine months ended September 30, 2015, gains attributable to retained MSRs were $9.5 million and $27.8 million, respectively.

Also included in Gains on loans held for sale, net are gains of $6.9 million and $19.9 million recorded during the three and nine months ended September 30, 2016, respectively, on sales of repurchased Ginnie Mae loans, which are carried at the lower of cost or fair value. For the three and nine months ended September 30, 2015, gains on sales of repurchased Ginnie Mae loans were $5.3 million and $18.3 million, respectively.

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 $37.8 million and $90.3 million for the three and nine months ended September 30, 2016, respectively. Fair value gains for the three and nine months ended September 30, 2015 were $30.1 million and $91.1 million, respectively.