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Fair Value
 12 Months Ended
Dec. 31, 2014
Fair Value Disclosures [Abstract]  
Fair Value
Fair Value
Basis or Measurement
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A three-tier fair value hierarchy is used to prioritize the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted market prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The three levels of the fair value hierarchy are as follows:
Level 1 — Valuation is based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2 — Valuation is based on quoted market prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3 — Valuation is based on inputs that are both significant to the fair value measurement and unobservable.
The accounting guidance concerning fair value allows the Company to elect to measure financial instruments at fair value and report the changes in fair value through net income or loss. This election can only be made at certain specified dates and is irrevocable once made. Other than mortgage loans held for sale, all of which the Company has elected to measure at fair value, the Company does not have a fair value election policy, but rather makes the election on an instrument-by-instrument basis as assets and liabilities are acquired or incurred, other than for those assets and liabilities that are required to be recorded and subsequently measured at fair value. In addition, through the S1L acquisition, the Company recognized a contingent earn-out payments liability that it measured at fair value on a recurring basis in accordance with the accounting guidance for business combinations.
Transfers into and out of the fair value hierarchy levels are assumed to be as of the end of the quarter in which the transfer occurred. Other than the transfer of the contingent earn-out payment liability from Level 3 to Level 1 in 2013, no other transfers between levels occurred during the years ended December 31, 2014 and 2013.
Items Measured at Fair Value on a Recurring Basis
The following table summarizes the assets and liabilities in each level of the fair value hierarchy (in thousands):
 
 
December 31,
 
 
2014
 
2013
Level 1
 
 
 
 
Liabilities
 
 
 
 
Contingent earn-out payments
 
$
—

 
$
5,900

Level 1 liabilities
 
$
—

 
$
5,900

 
 
 
 
 
Level 2
 
 
 
 
Assets
 
 
 
 
Mortgage loans held for sale
 
$
1,124,615

 
$
1,015,607

Freestanding derivative instruments
 
7,751

 
19,534

Level 2 assets
 
$
1,132,366

 
$
1,035,141

Liabilities
 
 
 
 
Freestanding derivative instruments
 
$
29,761

 
$
2,127

Level 2 liabilities
 
$
29,761

 
$
2,127

 
 
 
 
 
 
 
December 31,
 
 
2014
 
2013
Level 3
 
 
 
 
Assets
 
 
 
 
Reverse loans
 
$
10,064,365

 
$
8,738,503

Mortgage loans related to Non-Residual Trusts
 
586,433

 
587,265

Charged-off loans
 
57,217

 
—

Receivables related to Non-Residual Trusts
 
25,201

 
43,545

Servicing rights carried at fair value
 
1,599,541

 
1,131,124

Freestanding derivative instruments (IRLCs)
 
60,400

 
42,831

Level 3 assets
 
$
12,393,157

 
$
10,543,268

Liabilities
 
 
 
 
Freestanding derivative instruments (IRLCs)
 
$
263

 
$
3,755

Excess servicing spread liability
 
66,311

 
—

Mortgage-backed debt related to Non-Residual Trusts
 
653,167

 
684,778

HMBS related obligations
 
9,951,895

 
8,652,746

Level 3 liabilities
 
$
10,671,636

 
$
9,341,279

The following assets and liabilities are measured on the consolidated financial statements at fair value on a recurring basis utilizing significant unobservable inputs or Level 3 assumptions in their valuation. The following tables provide a reconciliation of the beginning and ending balances of these assets and liabilities (in thousands):
 
 
For the Year Ended December 31, 2014
 
 
Fair Value
January 1,
2014
 
Acquisition of EverBank Net Assets
 
Total
Gains (Losses)
Included in
Comprehensive
Loss
 
Purchases
 
Sales
 
Originations / Issuances
 
Settlements
 
Fair Value December 31, 2014
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reverse loans
 
$
8,738,503

 
$
—

 
$
434,197

 
$
894,252

 
$
—

 
$
611,826

 
$
(614,413
)
 
$
10,064,365

Mortgage loans related to Non-Residual Trusts
 
587,265

 
—

 
111,258

 
—

 
—

 
—

 
(112,090
)
 
586,433

Charged-off loans
 
—

 
—

 
22,501

 
64,548

 
—

 
—

 
(29,832
)
 
57,217

Receivables related to Non-Residual Trusts
 
43,545

 
—

 
(8,873
)
 
—

 
—

 
—

 
(9,471
)
 
25,201

Servicing rights carried at fair value
 
1,131,124

 
58,680

 
(273,502
)
 
479,820

 
(10,866
)
 
214,285

 
—

 
1,599,541

Freestanding derivative instruments (IRLCs)
 
42,831

 
—

 
17,569

 
—

 
—

 
—

 
—

 
60,400

Total assets
 
$
10,543,268

 
$
58,680

 
$
303,150

 
$
1,438,620

 
$
(10,866
)
 
$
826,111

 
$
(765,806
)
 
$
12,393,157

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Freestanding derivative instruments (IRLCs)
 
$
(3,755
)
 
$
—

 
$
3,492

 
$
—

 
$
—

 
$
—

 
$
—

 
$
(263
)
Excess servicing spread liability
 
—

 
—

 
(2,800
)
 
—

 
—

 
(75,426
)
 
11,915

 
(66,311
)
Mortgage-backed debt related to Non-Residual Trusts
 
(684,778
)
 
—

 
(82,253
)
 
—

 
—

 
—

 
113,864

 
(653,167
)
HMBS related obligations
 
(8,652,746
)
 
—

 
(324,225
)
 
—

 
—

 
(1,617,398
)
 
642,474

 
(9,951,895
)
Total liabilities
 
$
(9,341,279
)
 
$
—

 
$
(405,786
)
 
$
—

 
$
—

 
$
(1,692,824
)
 
$
768,253

 
$
(10,671,636
)


 
 
For the Year Ended December 31, 2013
 
 
Fair Value
January 1,
2013
 
Acquisition
of ResCap
Net Assets
 
Total
Gains (Losses)
Included in
Comprehensive
Income
 
Purchases
 
Sales
 
Originations / Issuances
 
Settlements
 
Transfers Out
 
Fair Value
December 31, 2013
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reverse loans (1)
 
$
6,047,108

 
$
—

 
$
112,772

 
$
2,080,857

 
$
(76,441
)
 
$
981,390

 
$
(407,183
)
 
$
—

 
$
8,738,503

Mortgage loans related to Non-Residual Trusts
 
646,498

 
—

 
64,848

 
—

 
—

 
—

 
(124,081
)
 
—

 
587,265

Receivables related to Non-Residual Trusts
 
53,975

 
—

 
4,374

 
—

 
—

 
—

 
(14,804
)
 
—

 
43,545

Servicing rights carried at fair value
 
26,382

 
242,604

 
48,058

 
626,331

 
—

 
187,749

 
—

 
—

 
1,131,124

Freestanding derivative instruments (IRLCs)
 
949

 
—

 
41,882

 
—

 
—

 
—

 
—

 
—

 
42,831

Total assets
 
$
6,774,912

 
$
242,604

 
$
271,934

 
$
2,707,188

 
$
(76,441
)
 
$
1,169,139

 
$
(546,068
)
 
$
—

 
$
10,543,268

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Freestanding derivative instruments (IRLCs)
 
$
—

 
$
—

 
$
(3,755
)
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
(3,755
)
Contingent earn-out payments
 
(6,100
)
 
—

 
(4,800
)
 
—

 
—

 
—

 
5,000

 
5,900

 
—

Mortgage-backed debt related to Non-Residual Trusts
 
(757,286
)
 
—

 
(57,678
)
 
—

 
—

 
—

 
130,186

 
—

 
(684,778
)
HMBS related obligations
 
(5,874,552
)
 
—

 
12,302

 
—

 
—

 
(3,203,959
)
 
413,463

 
—

 
(8,652,746
)
Total liabilities
 
$
(6,637,938
)
 
$
—

 
$
(53,931
)
 
$
—

 
$
—

 
$
(3,203,959
)
 
$
548,649

 
$
5,900

 
$
(9,341,279
)
_______
(1)
Includes $28.5 million in reverse loans held for sale at January 1, 2013. There were no reverse loans held for sale at December 31, 2013.
Refer to Note 2 for the location on the consolidated statements of comprehensive income (loss) of gains and losses resulting from changes in fair value of the assets and liabilities disclosed above. Gains and losses disclosed above include interest income and interest expense at the stated rate for interest-bearing assets and liabilities, respectively, accretion and amortization, and the impact of the changes in valuation inputs and assumptions.
The Company’s valuation committee determines and approves valuation policies and unobservable inputs used to estimate the fair value of items measured at fair value on a recurring basis. The valuation committee, consisting of certain members of the senior executive management team, meets on a quarterly basis to review the assets and liabilities that require fair value measurement, including how each asset and liability has actually performed in comparison to the unobservable inputs and the projected performance provided by the Company’s credit risk group. The valuation committee also reviews discount rate assumptions and related available market data.
The following is a description of the methods used to estimate the fair values of the Company’s assets and liabilities measured at fair value on a recurring basis, as well as the basis for classifying these assets and liabilities as Level 2 or 3 within the fair value hierarchy. The Company’s valuations consider assumptions that it believes a market participant would consider in valuing the assets and liabilities, the most significant of which are disclosed below. The Company reassesses and periodically adjusts the underlying inputs and assumptions used in the valuations for recent historical experience, as well as for current and expected relevant market conditions.
Residential loans
•
Reverse loans, mortgage loans related to Non-Residual Trusts and charged-off loans - These loans are not traded in an active, open market with readily observable prices. Accordingly, the Company estimates fair value using Level 3 unobservable market inputs. The estimated fair value is based on the net present value of projected cash flows over the estimated life of the loans. The discount rate assumption for these assets considers, as applicable, collateral and credit risk characteristics of the loans, collection rates, current market interest rates, expected duration, and current market yields.

•
Mortgage loans held for sale — These loans are valued using a market approach by utilizing observable quoted market prices, where available, or prices for other whole loans with similar characteristics. The Company classifies these loans as Level 2 within the fair value hierarchy.
Receivables related to Non-Residual Trusts — The Company estimates the fair value of these receivables using Level 3 unobservable market inputs at the net present value of expected cash flows from the LOCs to be used to pay debt holders over the remaining life of the securitization trusts. Receivables related to Non-Residual Trusts are recorded in receivables, net, on the consolidated balance sheets.
Servicing rights carried at fair value — The Company accounts for servicing rights associated with the risk-managed loan class at fair value. The Company uses the assistance of a third-party valuation specialist to develop the discounted cash flow model used to estimate the fair value of these assets. The assumptions utilized are based on collateral stratifications including product type, remittance type, geography, delinquency, and coupon dispersion of the underlying loan portfolio. The Company classifies servicing rights within Level 3 of the fair value hierarchy.

Freestanding derivative instruments — Fair values of IRLCs are derived using valuation models incorporating market pricing for instruments with similar characteristics and by estimating the fair value of the servicing rights expected to be recorded at sale of the loan and are adjusted for anticipated loan funding probability. Both the fair value of servicing rights expected to be recorded at the date of sale of the loan and anticipated loan funding probability are significant unobservable inputs and, as a result, IRLCs are classified as Level 3 within the fair value hierarchy. The loan funding probability ratio represents the aggregate likelihood that loans currently in a lock position will ultimately close, which is largely dependent on the loan processing stage that a loan is currently in, and changes in interest rates from the time of the rate lock through the time a loan is closed. IRLCs have positive fair value at inception and change in value as interest rates and loan funding probability change. Rising interest rates have a positive effect on the fair value of the servicing rights component of the IRLC fair value and increase the loan funding probability. An increase in loan funding probability (i.e., higher aggregate likelihood of loans estimated to close) will result in the fair value of the IRLC increasing if in a gain position, or decreasing, to a lower loss, if in a loss position. A significant increase (decrease) to the fair value of servicing rights in isolation could result in a significantly higher (lower) fair value measurement.
The fair value of forward sales commitments and MBS purchase commitments is determined based on observed market pricing for similar instruments; therefore, these contracts are classified as Level 2 within the fair value hierarchy. Counterparty credit risk is taken into account when determining fair value, although the impact is diminished by daily margin posting on all forward sales and purchase derivatives. Refer to Note 7 for additional information on freestanding derivative financial instruments.
Contingent earn-out payments — This contingent liability, which related to the Company's acquisition of S1L, was previously based on the average earn-out payment under multiple outcomes as determined by a Monte-Carlo simulation using Level 3 unobservable inputs. The maximum earn-out, based on S1L’s performance, was $10.9 million, of which $5.0 million was paid to the prior owners of S1L during the year ended December 31, 2013. The liability under the earn-out was fixed and determinable and, therefore, classified as Level 1 at December 31, 2013. The remaining liability was included in payables and accrued liabilities on the consolidated balance sheet at December 31, 2013 and was paid in full in February 2014.
Excess servicing spread liability — The Company uses the assistance of a third-party valuation specialist to develop the discounted cash flow model used to estimate the fair value of this liability. The assumptions utilized are based on collateral stratifications including product type, remittance type, geography, delinquency, and coupon dispersion of the underlying loan portfolio. The Company classifies its excess servicing spread liability as Level 3 within the fair value hierarchy.
Mortgage-backed debt related to Non-Residual Trusts — This debt is not traded in an active, open market with readily observable prices. Accordingly, the Company estimates fair value using Level 3 unobservable market inputs. The estimated fair value of the debt is based on the net present value of the projected principal and interest payments owed for the remaining life of the securitization trusts. An analysis of the credit assumptions for the underlying collateral in each of the securitization trusts is performed to determine the required payments to debt holders.
HMBS related obligations — These obligations are not traded in an active, open market with readily observable prices. Accordingly, the Company estimates fair value using Level 3 unobservable market inputs. The estimated fair value is based on the net present value of projected cash flows over the estimated life of the liability. The discount rate assumption for these liabilities is based on an assessment of current market yields for HMBS, expected duration, and current market interest rates. The yield on seasoned HMBS is adjusted based on the duration of each HMBS and assuming a constant spread to LIBOR.
The following table presents the significant unobservable inputs used in the fair value measurement of the assets and liabilities described above. The Company utilizes a discounted cash flow method in the fair value measurement of all Level 3 assets and liabilities included on the consolidated financial statements at fair value on a recurring basis, with the exception of IRLCs for which the Company utilizes a market approach.
With the exception of IRLCs and collection rates associated with charged-off loans, significant increases (decreases) in any of the inputs related to assets disclosed below, in isolation, could result in a significantly lower (higher) fair value measurement. Significant increases (decreases) in any of the inputs related to liabilities, other than IRLCs, and collection rates on charged-off loans, as disclosed below, in isolation, could result in a significantly higher (lower) fair value measurement. The impact on fair value for increases and decreases to significant unobservable inputs related to IRLCs is discussed above.
 
 
 
 
December 31, 2014
 
December 31, 2013
 
 
Significant
Unobservable Input (1) (2)
 
Range of Input (3)
 
Weighted
Average of Input (3)
 
Range of Input (3)
 
Weighted
Average of Input (3)
Assets
 
 
 
 
 
 
 
 
 
 
Reverse loans
 
Weighted-average remaining life in years
 
1.8 - 12.3
 
4.7

 
2.0 - 12.9
 
4.4

 
 
Conditional repayment rate
 
13.40% - 42.20%
 
21.68
%
 
10.67% - 36.61%
 
20.70
%
 
 
Discount rate
 
2.00% - 3.65%
 
2.76
%
 
1.79% - 5.30%
 
2.98
%
Mortgage loans related to Non-Residual Trusts
 
Conditional prepayment rate
 
2.24% - 3.76%
 
3.17
%
 
2.20% - 3.78%
 
2.99
%
 
 
Conditional default rate
 
1.68% - 3.51%
 
2.34
%
 
1.81% - 3.60%
 
2.90
%
 
 
Loss severity
 
76.12% - 92.53%
 
85.88
%
 
75.90% - 96.67%
 
88.09
%
 
 
Discount rate
 
8.00%
 
8.00
%
 
10.00%
 
10.00
%
Charged-off loans
 
Collection rate
 
2.34% - 4.53%
 
2.46
%
 
—
 
—
 
 
Discount rate
 
30.00% - 32.25%
 
30.19
%
 
—
 
—
Receivables related to Non-Residual Trusts
 
Conditional prepayment rate
 
1.89% - 3.33%
 
2.72
%
 
1.93% - 3.11%
 
2.66
%
 
 
Conditional default rate
 
1.92% - 3.81%
 
2.55
%
 
1.98% - 3.85%
 
3.16
%
 
 
Loss severity
 
73.26% - 89.78%
 
82.87
%
 
72.94% - 94.16%
 
85.25
%
 
 
Discount rate
 
0.50%
 
0.50
%
 
0.50%
 
0.50
%
Servicing rights carried at fair value
 
Weighted-average remaining life in years
 
5.6 - 9.3
 
6.6

 
6.0 - 10.8
 
6.8

 
 
Discount rate
 
8.24% - 29.16%
 
9.55
%
 
8.87% - 18.11%
 
9.76
%
 
 
Conditional prepayment rate
 
5.04% - 11.15%
 
7.87
%
 
3.85% - 8.08%
 
7.06
%
 
 
Conditional default rate
 
0.28% - 3.53%
 
2.36
%
 
0.50% - 3.74%
 
2.90
%
Interest rate lock commitments
 
Loan funding probability
 
3.44% - 100.00%
 
77.45
%
 
11.99% - 100.00%
 
78.23
%
 
 
Fair value of initial servicing rights multiple (4) 
 
0.20 - 5.47
 
3.83

 
1.64 - 5.60
 
4.21

 
 
 
 
December 31, 2014
 
December 31, 2013
 
 
Significant
Unobservable Input (1) (2)
 
Range of Input (3)
 
Weighted
Average of Input (3)
 
Range of Input (3)
 
Weighted
Average of Input (3)
Liabilities
 
 
 
 
 
 
 
 
 
 
Interest rate lock commitments
 
Loan funding probability
 
28.00% - 100.00%
 
80.90
%
 
46.50% - 100.00%
 
82.67
%
 
 
Fair value of initial servicing rights multiple (4)
 
0.67 - 5.47
 
4.06

 
1.89 - 5.30
 
4.52

Excess servicing spread liability
 
Weighted-average remaining life in years
 
7.2 - 7.4
 
7.3

 
—
 
—
 
 
Discount rate
 
13.60%
 
13.60
%
 
—
 
—
 
 
Conditional prepayment rate
 
7.71% - 7.89%
 
7.79
%
 
—
 
—
 
 
Conditional default rate
 
0.86% - 2.31%
 
1.51
%
 
—
 
—
Mortgage-backed debt related to Non-Residual Trusts
 
Conditional prepayment rate
 
1.89% - 3.33%
 
2.72
%
 
1.93% - 3.11%
 
2.66
%
 
 
Conditional default rate
 
1.92% - 3.81%
 
2.55
%
 
1.98% - 3.85%
 
3.16
%
 
 
Loss severity
 
73.26% - 89.78%
 
82.87
%
 
72.94% - 94.16%
 
85.25
%
 
 
Discount rate
 
6.00%
 
6.00
%
 
8.00%
 
8.00
%
HMBS related obligations
 
Weighted-average remaining life in years
 
1.3 - 7.7
 
3.9

 
1.9 - 7.8
 
4.1

 
 
Conditional repayment rate
 
11.30% - 48.65%
 
21.21
%
 
10.22% - 38.67%
 
20.31
%
 
 
Discount rate
 
1.44% - 3.06%
 
2.36
%
 
1.38% - 4.01%
 
2.36
%
__________
(1)
Conditional repayment rate includes assumptions for both voluntary and involuntary rates as well as assumptions for the assignment of HECMs to HUD, in accordance with obligations as servicer.
(2)
Voluntary and involuntary prepayment rates have been presented as conditional prepayment rate and conditional default rate, respectively.
(3)
With the exception of loss severity, fair value of initial servicing rights embedded in IRLCs and discount rate on charged-off loans, all significant unobservable inputs above are based on the related unpaid principal balance of the underlying collateral, or in the case of HMBS related obligations, the balance outstanding. Loss severity is based on projected liquidations. Fair value of servicing rights embedded in IRLCs represents a multiple of the annual servicing fee. The discount rate on charged-off loans is based on the loan balance at fair value.
(4)
Excludes the impact of IRLCs identified as servicing released.
Fair Value Option
The Company has elected the fair value option for mortgage loans, receivables and mortgage-backed debt related to the Non-Residual Trusts; reverse loans; mortgage loans held for sale; charged-off loans; servicing rights associated with the risk managed loan class; excess servicing spread liability; and HMBS related obligations. The fair value option was elected for these assets and liabilities as the Company believes fair value best reflects their expected future economic performance.

Presented in the table below is the estimated fair value and unpaid principal balance of loans and debt instruments that have contractual principal amounts and for which the Company has elected the fair value option (in thousands):
 
 
December 31, 2014
 
December 31, 2013
 
 
Estimated
Fair Value
 
Unpaid Principal
Balance
 
Estimated
Fair Value
 
Unpaid Principal
Balance
Loans at fair value under the fair value option
 
 
 
 
 
 
 
 
Reverse loans (1)
 
$
10,064,365

 
$
9,340,270

 
$
8,738,503

 
$
8,135,927

Mortgage loans held for sale (1)
 
1,124,615

 
1,071,787

 
1,015,607

 
976,774

Mortgage loans related to Non-Residual Trusts
 
586,433

 
650,382

 
587,265

 
727,110

Charged-off loans
 
57,217

 
3,366,504

 
—

 
—

Total
 
$
11,832,630

 
$
14,428,943

 
$
10,341,375

 
$
9,839,811

 
 
 
 
 
 
 
 
 
Debt instruments at fair value under the fair value option
 
 
 
 
 
 
 
 
Mortgage-backed debt related to Non-Residual Trusts
 
$
653,167

 
$
657,174

 
$
684,778

 
$
735,379

HMBS related obligations (2)
 
9,951,895

 
9,172,083

 
8,652,746

 
7,959,711

Total
 
$
10,605,062

 
$
9,829,257

 
$
9,337,524

 
$
8,695,090

__________
(1)
Includes loans that collateralize master repurchase agreements. Refer to Note 18 for further information.
(2)
For HMBS related obligations, the unpaid principal balance represents the balance outstanding.
Included in mortgage loans related to Non-Residual Trusts are loans that are 90 days or more past due that have a fair value of $2.0 million and $1.7 million at December 31, 2014 and 2013, respectively, and an unpaid principal balance of $10.2 million and $9.4 million, at December 31, 2014 and 2013, respectively. All charged-off loans are 90 days or more past due.
Included in gains and losses associated with assets and liabilities for which the Company has elected the fair value option are fair value gains and losses from instrument-specific credit risk that include, as applicable, the change in fair value due to changes in assumptions related to prepayments, defaults, severity, and discount rates. Presented in the table below are the fair value gains and losses from instrument-specific credit risk associated with the assets and liabilities for which the Company has elected the fair value option (in thousands):
 
 
For the Years Ended December 31,
 
 
2014
 
2013
 
2012
Gains (losses) from changes in instrument-specific credit risk associated with assets under the fair value option
 
 
 
 
 
 
Mortgage loans related to Non-Residual Trusts
 
$
62,103

 
$
(4,340
)
 
$
17,845

Charged-off loans
 
7,598

 
—

 
—

Receivables related to Non-Residual Trusts
 
(8,120
)
 
2,903

 
(11,986
)
Total
 
$
61,581

 
$
(1,437
)
 
$
5,859

 
 
 
 
 
 
 
Gains (losses) from changes in instrument-specific credit risk associated with liabilities under the fair value option
 
 
 
 
 
 
Excess servicing spread liability
 
$
2,292

 
$
—

 
$
—

Mortgage-backed debt related to Non-Residual Trusts
 
(35,438
)
 
54

 
(5,416
)
Total
 
$
(33,146
)
 
$
54

 
$
(5,416
)

As a result of HECMs being insured by the FHA and HMBS related obligations being guaranteed by Ginnie Mae, instrument-specific credit risk associated with these assets and liabilities is insignificant. Due to the short holding period of mortgage loans held for sale, related fair value gains and losses from instrument-specific credit risk are also insignificant. The gains and losses associated with changes in instrument-specific credit risk for the assets and liabilities of the Non-Residual Trusts for the year ended December 31, 2014 were due primarily to the reduction of discount rates resulting from tightening of yields in the market. For changes in instrument-specific credit risk for servicing rights for which the Company has elected the fair value option, refer to the "changes in valuation inputs or other assumptions" in the table summarizing the activity in servicing rights carried at fair value included in Note 12.
Items Measured at Fair Value on a Non-Recurring Basis
The Company held real estate owned, net, of $88.4 million and $73.6 million at December 31, 2014 and 2013, respectively. Real estate owned, net, is included on the consolidated financial statements in other assets and is measured at net realizable value on a non-recurring basis utilizing significant unobservable inputs or Level 3 assumptions in their valuation.
The following table presents the significant unobservable input used in the fair value measurement of real estate owned, net:
 
 
 
 
December 31, 2014
 
December 31, 2013
 
 
Significant
Unobservable Input
 
Range of Input
 
Weighted
Average of Input
 
Range of Input
 
Weighted
Average of Input
Real estate owned, net
 
Loss severity (1)
 
0.00% - 59.58%
 
8.04
%
 
0.00% - 88.68%
 
9.48
%
__________
(1)
Loss severity is based on projected liquidations.
The Company held real estate owned, net, of $55.3 million, $32.1 million and $1.0 million in the Reverse Mortgage and Loans and Residuals segments and Other non-reportable segment, respectively, at December 31, 2014. The Company held real estate owned, net, of $27.0 million, $45.3 million and $1.3 million in the Reverse Mortgage and Loans and Residuals segments and Other non-reportable segment, respectively, at December 31, 2013. Properties (represented by 5% or more of real estate owned) are located in Texas, Florida, Alabama, Illinois, and Mississippi. In determining fair value, the Company either obtains appraisals or performs a review of historical severity rates of real estate owned previously sold by the Company. When utilizing historical severity rates, the properties are stratified by collateral type and/or geographical concentration and length of time held by the Company. The severity rates are reviewed for reasonableness by comparison to third-party market trends and fair value is determined by applying severity rates to the stratified population. Management approves valuations that have been determined using the historical severity rate method.
For the years ended December 31, 2014, 2013 and 2012, real estate owned expenses, net, which are recorded in other expenses, net on the consolidated statements of comprehensive income (loss) were $7.0 million, $6.4 million and $6.8 million, respectively. Included in real estate owned expenses, net, are lower of cost or fair value adjustments of $2.8 million, $0.8 million and $2.7 million for the years ended December 31, 2014, 2013 and 2012, respectively.
Fair Value of Other Financial Instruments
The following table presents the carrying amounts and estimated fair values of financial assets and liabilities that are not recorded at fair value on a recurring or non-recurring basis and their respective levels within the fair value hierarchy (in thousands). This table excludes cash and cash equivalents, restricted cash and cash equivalents, servicer payables and warehouse borrowings as these financial instruments are highly liquid or short-term in nature and as a result, their carrying amounts approximate fair value.
 
 
 
 
December 31, 2014
 
December 31, 2013
 
 
Fair Value
Hierarchy
 
Carrying
Amount
 
Estimated
Fair Value
 
Carrying
Amount
 
Estimated
Fair Value
Financial assets
 
 
 
 
 
 
 
 
 
 
Residential loans at amortized cost, net
 
Level 3
 
$
1,314,539

 
$
1,377,213

 
$
1,394,871

 
$
1,341,376

Insurance premium receivables
 
Level 3
 
98,220

 
93,395

 
103,149

 
97,902

Servicer and protective advances, net
 
Level 3
 
1,761,082

 
1,691,443

 
1,381,434

 
1,332,315

 
 
 
 
 
 
 
 
 
 
 
Financial liabilities
 
 
 
 
 
 
 
 
 
 
Payables to insurance carriers
 
Level 3
 
69,498

 
68,673

 
69,489

 
68,470

Servicing advance liabilities (1)
 
Level 3
 
1,362,017

 
1,367,519

 
970,884

 
971,286

Corporate debt (1)
 
Level 2
 
2,230,557

 
2,095,286

 
2,229,969

 
2,322,709

Mortgage-backed debt carried at amortized cost (1)
 
Level 3
 
1,086,660

 
1,121,369

 
1,189,536

 
1,192,510

__________
(1)
The carrying amounts of servicing advance liabilities, corporate debt and mortgage-backed debt carried at amortized cost are net of deferred issuance costs.
The following is a description of the methods and significant assumptions used in estimating the fair value of the Company’s financial instruments that are not measured at fair value on a recurring or non-recurring basis.
Residential loans at amortized cost, net — The methods and assumptions used to estimate the fair value of residential loans carried at amortized cost are the same as those described for mortgage loans related to Non-Residual Trusts carried at fair value on a recurring basis.
Insurance premium receivables — The estimated fair value of these receivables is based on the net present value of the expected cash flows. The determination of fair value includes assumptions related to the underlying collateral serviced by the Company, such as delinquency and default rates, as the insurance premiums are collected as part of the borrowers’ loan payments or from the related trusts.
Servicer and protective advances, net — The estimated fair value of these advances is based on the net present value of expected cash flows. The determination of expected cash flows includes consideration of recoverability clauses in the Company’s servicing agreements, as well as, assumptions related to the underlying collateral when proceeds may be used to recover these receivables.
Payables to insurance carriers — The estimated fair value of these liabilities is based on the net present value of the expected carrier payments over the life of the payables.
Servicing advance liabilities — The estimated fair value of the majority of these liabilities approximates carrying value as these liabilities bear interest at a rate that is adjusted regularly based on a market index.
Corporate debt — The Company’s 2013 Term Loan, Convertible Notes, and Senior Notes are not traded in an active, open market with readily observable prices. The estimated fair value of corporate debt is based on an average of broker quotes.
Mortgage-backed debt carried at amortized cost — The methods and assumptions used to estimate the fair value of mortgage-backed debt carried at amortized cost are the same as those described for mortgage-backed debt related to Non-Residual Trusts carried at fair value on a recurring basis.
Net Gains on Sales of Loans
Provided in the table below is a summary of the components of net gains on sales of loans (in thousands):
 
 
For the Years Ended December 31,
 
 
2014
 
2013
 
2012
Realized gains on sales of loans
 
$
367,314

 
$
218,504

 
$
537

Change in unrealized gains on loans held for sale
 
1,412

 
24,771

 
266

Gains on interest rate lock commitments
 
21,061

 
38,126

 
949

Gains (losses) on forward sales commitments
 
(156,201
)
 
111,830

 
(1,102
)
Losses on MBS purchase commitments
 
(18,009
)
 
(5,599
)
 
—

Capitalized servicing rights
 
214,285

 
187,749

 
—

Provision for repurchases
 
(7,741
)
 
(9,067
)
 
(18
)
Interest income
 
40,051

 
32,625

 
16

Other
 
—

 
35

 
—

Net gains on sales of loans
 
$
462,172

 
$
598,974

 
$
648


Net Fair Value Gains on Reverse Loans and Related HMBS Obligations
Provided in the table below is a summary of the components of net fair value gains on reverse loans and related HMBS obligations (in thousands):
 
 
For the Years Ended December 31,
 
 
2014
 
2013
 
2012
Interest income on reverse loans
 
$
398,925

 
$
347,497

 
$
44,314

Change in fair value of reverse loans
 
35,272

 
(239,417
)
 
20,716

Net fair value gains on reverse loans
 
434,197

 
108,080

 
65,030

 
 
 
 
 
 
 
Interest expense on HMBS related obligations
 
(372,346
)
 
(321,820
)
 
(41,114
)
Change in fair value of HMBS related obligations
 
48,121

 
334,122

 
(16,637
)
Net fair value gains (losses) on HMBS related obligations
 
(324,225
)
 
12,302

 
(57,751
)
Net fair value gains on reverse loans and related HMBS obligations
 
$
109,972

 
$
120,382

 
$
7,279