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 years ended December 31:



	2016			2015			2014
Beginning balance	$	309,054		$	401,120		$	503,753
Originations and purchases	4,211,871			3,944,509			4,967,767
Proceeds from sales	(4,236,158		)	(4,061,217		)	(5,001,935		)
Principal collections	(11,620		)	(8,647		)	(13,300		)
Transfers to loans held for investment - reverse mortgages	—			—			(110,874		)
Transfers from loans held for sale at lower of cost or fair value	3,266			1,200			—
Gain on sale of loans	13,421			42,053			49,533
Increase (decrease) in fair value of loans	(7,030		)	(9,066		)	6,198
Other	1,828			(898		)	(22		)
Ending balance (1)	$	284,632		$	309,054		$	401,120


(1)	At December 31, 2016, 2015 and 2014, the balances include $4.9 million, $11.9 million and $21.0 million, respectively, of fair value adjustments.

At December 31, 2016, loans held for sale, at fair value with a UPB of $279.0 million were pledged as collateral to 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 years ended December 31:



	2016			2015			2014
Beginning balance	$	104,992		$	87,492		$	62,907
Purchases	1,878,561			1,056,172			2,462,573
Proceeds from sales	(1,699,427		)	(1,001,939		)	(2,067,965		)
Principal collections	(22,607		)	(53,400		)	(262,196		)
Transfers to accounts receivable	(256,336		)	(53,468		)	(114,675		)
Transfers to real estate owned	(7,675		)	(18,594		)	(8,808		)
Transfers to loans held for sale at fair value	(3,266		)	(1,200		)	—
Gain on sale of loans	24,565			43,449			31,853
Decrease (increase) in valuation allowance	4,594			35,018			(18,965		)
Other	5,973			11,462			2,768
Ending balance (1)	$	29,374		$	104,992		$	87,492


(1)	At December 31, 2016, 2015 and 2014, the balances include $24.8 million, $85.9 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.

The change in the valuation allowance during the years ended December 31 is as follows:



	2016			2015			2014
Beginning balance	$	14,658		$	49,676		$	30,711
Provision	3,599			(400		)	(1,301		)
Transfer from liability for indemnification obligations	2,368			1,180			20,441
Sales of loans	(10,208		)	(37,776		)	(7,614		)
Other	(353		)	1,978			7,439
Ending balance	$	10,064		$	14,658		$	49,676

At December 31, 2016, loans held for sale, at lower of cost or fair value with a UPB of $12.7 million were pledged as collateral to 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 NRZ subsidiaries in 2014 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:



	2016			2015			2014
Gain on sales of loans, net	$	93,308		$	152,970		$	168,449
Change in fair value of IRLCs	(55		)	14			(25,822		)
Change in fair value of loans held for sale	4,595			(8,525		)	10,489
Loss on economic hedge instruments	(6,592		)	(8,675		)	(17,214		)
Other	(865		)	(815		)	(1,605		)
	$	90,391		$	134,969		$	134,297

Gain on loans held for sale, net includes $36.0 million, $36.0 million and $39.8 million for 2016, 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 $24.6 million, $23.0 million and $54.7 million recorded during 2016, 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 transfers of reverse mortgages into Ginnie Mae guaranteed securitizations are also included in Gains on loans held for sale, net and amounted to $125.7 million, $112.6 million and $72.7 million during 2016, 2015 and 2014, respectively.