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Fair Value
 3 Months Ended
Mar. 31, 2017
Fair Value Disclosures [Abstract]  
Fair Value Disclosures
Fair Value
Basis for 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, 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.
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. There were no transfers between levels during the three months ended March 31, 2017 or 2016.
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). There was an insignificant amount of assets or liabilities measured at fair value on a recurring basis utilizing Level 1 assumptions.
 
 
March 31, 
 2017
 
December 31, 
 2016
Level 2
 
 
 
 
Assets
 
 
 
 
Mortgage loans held for sale
 
$
1,148,940

 
$
1,176,280

Servicing rights carried at fair value
 
21,063

 
13,170

Freestanding derivative instruments
 
1,826

 
34,543

Level 2 assets
 
$
1,171,829

 
$
1,223,993

Liabilities
 
 
 
 
Freestanding derivative instruments
 
$
13,557

 
$
7,611

Servicing rights related liabilities
 
3,537

 
1,902

Level 2 liabilities
 
$
17,094

 
$
9,513

 
 
 
 
 
Level 3
 
 
 
 
Assets
 
 
 
 
Reverse loans
 
$
10,599,732

 
$
10,742,922

Mortgage loans related to Non-Residual Trusts
 
440,219

 
450,377

Charged-off loans
 
52,071

 
46,963

Receivables related to Non-Residual Trusts
 
13,848

 
15,033

Servicing rights carried at fair value
 
909,270

 
936,423

Freestanding derivative instruments (IRLCs)
 
45,347

 
53,394

Level 3 assets
 
$
12,060,487

 
$
12,245,112

Liabilities
 
 
 
 
Freestanding derivative instruments (IRLCs)
 
$
714

 
$
4,193

Mortgage-backed debt related to Non-Residual Trusts
 
498,768

 
514,025

HMBS related obligations
 
10,289,505

 
10,509,449

Level 3 liabilities
 
$
10,788,987

 
$
11,027,667

The following assets and liabilities are measured on the consolidated balance sheets 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 Three Months Ended March 31, 2017
 
 
Fair Value
January 1, 2017
 
Total
Gains (Losses)
Included in
Comprehensive Income
 
Purchases
 
Sales and Other
 
Originations / Issuances
 
Settlements
 
Fair Value
March 31, 2017
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reverse loans
 
$
10,742,922

 
$
42,612

 
$
43,134

 
$
—

 
$
87,062

 
$
(315,998
)
 
$
10,599,732

Mortgage loans related to Non-Residual Trusts
 
450,377

 
12,502

 
—

 
—

 
—

 
(22,660
)
 
440,219

Charged-off loans (1)
 
46,963

 
14,591

 
—

 
—

 
—

 
(9,483
)
 
52,071

Receivables related to Non-Residual Trusts
 
15,033

 
2,569

 
—

 
—

 
—

 
(3,754
)
 
13,848

Servicing rights carried at fair value
 
936,423

 
(52,479
)
 
446

 
76

 
24,804

 
—

 
909,270

Freestanding derivative instruments (IRLCs)
 
53,394

 
(8,006
)
 
—

 
—

 
—

 
(41
)
 
45,347

Total assets
 
$
12,245,112

 
$
11,789

 
$
43,580

 
$
76

 
$
111,866

 
$
(351,936
)
 
$
12,060,487

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Freestanding derivative instruments (IRLCs)
 
$
(4,193
)
 
$
3,479

 
$
—

 
$
—

 
$
—

 
$
—

 
$
(714
)
Mortgage-backed debt related to Non-Residual Trusts
 
(514,025
)
 
(8,559
)
 
—

 
—

 
—

 
23,816

 
(498,768
)
HMBS related obligations
 
(10,509,449
)
 
(27,910
)
 
—

 
—

 
(154,315
)
 
402,169

 
(10,289,505
)
Total liabilities
 
$
(11,027,667
)
 
$
(32,990
)
 
$
—

 
$
—

 
$
(154,315
)
 
$
425,985

 
$
(10,788,987
)
__________
(1)
Included in gains on charged-off loans are gains from instrument-specific credit risk, which primarily result from changes in assumptions related to collection rates and discount rates, of $10.1 million during the three months ended March 31, 2017.
 
 
For the Three Months Ended March 31, 2016
 
 
Fair Value
January 1, 2016
 
Total
Gains (Losses)
Included in
Comprehensive Loss
 
Purchases and Other
 
Originations / Issuances
 
Settlements
 
Fair Value
March 31, 2016
Assets
 
 
 
 
 
 
 
 
 
 
 
 
Reverse loans
 
$
10,763,816

 
$
154,834

 
$
54,020

 
$
127,151

 
$
(226,930
)
 
$
10,872,891

Mortgage loans related to Non-Residual Trusts 
 
526,016

 
5,163

 
—

 
—

 
(24,842
)
 
506,337

Charged-off loans (1)
 
49,307

 
14,376

 
—

 
—

 
(10,437
)
 
53,246

Receivables related to Non-Residual Trusts
 
16,542

 
(467
)
 
—

 
—

 
(1,957
)
 
14,118

Servicing rights carried at fair value
 
1,682,016

 
(326,580
)
 
19,637

 
52,258

 
—

 
1,427,331

Freestanding derivative instruments (IRLCs)
 
51,519

 
13,102

 
—

 
—

 
(214
)
 
64,407

Total assets
 
$
13,089,216

 
$
(139,572
)
 
$
73,657

 
$
179,409

 
$
(264,380
)
 
$
12,938,330

 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
Freestanding derivative instruments (IRLCs)
 
$
(1,070
)
 
$
815

 
$
—

 
$
—

 
$
—

 
$
(255
)
Servicing rights related liabilities
 
(117,000
)
 
3,294

 
—

 
—

 
8,147

 
(105,559
)
Mortgage-backed debt related to Non-Residual Trusts
 
(582,340
)
 
(6,932
)
 
—

 
—

 
24,440

 
(564,832
)
HMBS related obligations
 
(10,647,382
)
 
(119,626
)
 
—

 
(202,947
)
 
272,520

 
(10,697,435
)
Total liabilities
 
$
(11,347,792
)
 
$
(122,449
)
 
$
—

 
$
(202,947
)
 
$
305,107

 
$
(11,368,081
)
__________
(1)
Included in gains on charged-off loans are gains from instrument-specific credit risk, which primarily result from changes in assumptions related to collection rates and discount rates, of $10.9 million during the three months ended March 31, 2016.
All gains and losses on assets and liabilities measured at fair value on a recurring basis and classified as Level 3 within the fair value hierarchy, with the exception of gains and losses on charged-off loans, IRLCs, servicing rights carried at fair value, and servicing rights related liabilities, are recognized in either other net fair value gains (losses) or net fair value gains on reverse loans and related HMBS obligations on the consolidated statements of comprehensive income (loss). Gains and losses related to charged-off loans are recorded in other revenues, while gains and losses relating to IRLCs are recorded in net gains on sales of loans on the consolidated statements of comprehensive income (loss). The change in fair value of servicing rights carried at fair value and servicing rights related liabilities are recorded in net servicing revenue and fees on the consolidated statements of comprehensive income (loss). Total gains and losses included in the financial statement line items 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. The Valuation Committee also reviews 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 the net present value of expected cash flows from the LOCs to be used to pay bondholders over the remaining life of the securitization trusts and applies Level 3 unobservable market inputs in its valuation. 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 primarily uses a discounted cash flow model to estimate the fair value of these assets, unless there is an agreed upon sales price for a specific portfolio on or prior to the applicable reporting date relating to such reporting period, in which case the assets are valued at the price that the trade will be executed. The assumptions used in the discounted cash flow model vary based on collateral stratifications including product type, remittance type, geography, delinquency, and coupon dispersion of the underlying loan portfolio. The Company classifies servicing rights that are valued at the agreed upon sales price within Level 2 of the fair value hierarchy, and the servicing rights that are valued using a discounted cash flow model are classified within Level 3 of the fair value hierarchy. The Company obtains third-party valuations on a quarterly basis to assess the reasonableness of the fair values calculated by the cash flow model.

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. The fair values are then 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 component 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 commitments. Refer to Note 7 for additional information on freestanding derivative financial instruments.
Servicing rights related liabilities — The fair value of the MSR liabilities related to NRM sales is consistent with the fair value methodology of the related servicing rights.
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 estimated 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 bondholders.
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 liabilities. 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 tables present the significant unobservable inputs used in the fair value measurement of the assets and liabilities described above. The Company utilizes a discounted cash flow model to estimate the fair value 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. Significant increases or decreases in any of the inputs disclosed below could result in a significantly lower or higher fair value measurement.
 
 
 
 
March 31, 2017
 
December 31, 2016
 
 
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 (4)
 
0.5 - 9.8
 
3.7

 
0.6 - 10.2
 
3.8

 
 
Conditional repayment rate
 
12.17% - 59.43%
 
29.58
%
 
13.23% - 55.32%
 
28.48
%
 
 
Discount rate
 
2.04% - 3.72%
 
3.00
%
 
1.93% - 3.69%
 
2.93
%
Mortgage loans related to Non-Residual Trusts
 
Conditional prepayment rate
 
1.91% - 2.44%
 
2.19
%
 
1.98% - 2.67%
 
2.27
%
 
 
Conditional default rate
 
0.99% - 5.10%
 
2.50
%
 
1.02% - 4.25%
 
2.61
%
 
 
Loss severity
 
85.33% - 100.00%
 
97.73
%
 
79.98% - 100.00%
 
96.61
%
 
 
Discount rate
 
8.00%
 
8.00
%
 
8.00%
 
8.00
%
Charged-off loans
 
Collection rate
 
3.20% - 5.37%
 
3.31
%
 
2.69% - 3.55%
 
2.74
%
 
 
Discount rate
 
28.00%
 
28.00
%
 
28.00%
 
28.00
%
Receivables related to Non-Residual Trusts
 
Conditional prepayment rate
 
2.27% - 3.07%
 
2.73
%
 
2.22% - 3.17%
 
2.65
%
 
 
Conditional default rate
 
2.56% - 5.84%
 
3.63
%
 
2.32% - 4.66%
 
3.34
%
 
 
Loss severity
 
83.45% - 100.00%
 
95.97
%
 
77.88% - 100.00%
 
94.51
%
 
 
Discount rate
 
0.50%
 
0.50
%
 
0.50%
 
0.50
%
Servicing rights carried at fair value
 
Weighted-average remaining life in years (4)
 
2.5 - 7.5
 
6.0

 
2.6 - 7.4
 
6.0

 
 
Discount rate
 
10.71% - 15.27%
 
11.83
%
 
10.68% - 14.61%
 
11.56
%
 
 
Conditional prepayment rate
 
5.89% - 23.00%
 
9.24
%
 
5.76% - 21.67%
 
9.09
%
 
 
Conditional default rate
 
0.04% - 3.02%
 
0.90
%
 
0.04% - 2.97%
 
0.88
%
 
 
Cost to service
 
$62 - $1,181
 
$130
 
$62 - $1,260
 
$128
Interest rate lock commitments
 
Loan funding probability
 
2.28% - 100.00%
 
71.91
%
 
16.00% - 100.00%
 
75.86
%
 
 
Fair value of initial servicing rights multiple (5) 
 
0.01 - 5.82
 
3.01

 
0.01 - 5.98
 
3.06

 
 
 
 
March 31, 2017
 
December 31, 2016
 
 
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
 
18.75% - 100.00%
 
81.13
%
 
34.40% - 100.00%
 
83.36
%
 
 
Fair value of initial servicing rights multiple (5)
 
0.02 - 5.16
 
3.52

 
0.04 - 6.04
 
3.69

Mortgage-backed debt related to Non-Residual Trusts
 
Conditional prepayment rate
 
2.27% - 3.07%
 
2.73
%
 
2.22% - 3.17%
 
2.65
%
 
 
Conditional default rate
 
2.56% - 5.84%
 
3.63
%
 
2.32% - 4.66%
 
3.34
%
 
 
Loss severity
 
83.45% - 100.00%
 
95.97
%
 
77.88% - 100.00%
 
94.51
%
 
 
Discount rate
 
6.00%
 
6.00
%
 
6.00%
 
6.00
%
HMBS related obligations
 
Weighted-average remaining life in years (4)
 
0.4 - 7.2
 
3.1

 
0.4 - 7.2
 
3.2

 
 
Conditional repayment rate
 
11.77% - 64.92%
 
28.84
%
 
11.49% - 57.76%
 
27.74
%
 
 
Discount rate
 
1.59% - 3.19%
 
2.63
%
 
1.50% - 3.17%
 
2.56
%
__________
(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)
Represents the remaining weighted-average life of the related unpaid principal balance or balance outstanding of the underlying collateral adjusted for assumptions for conditional repayment rate, conditional prepayment rate and conditional default rate, as applicable.
(5)
Fair value of servicing rights embedded in IRLCs, which represents a multiple of the annual servicing fee, excludes the impact of certain IRLCs identified as servicing released for which the Company does not ultimately realize the benefits.
Fair Value Option
With the exception of freestanding derivative instruments, the Company has elected the fair value option for the assets and liabilities described above as measured at fair value on a recurring basis. 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):
 
 
March 31, 2017
 
December 31, 2016
 
 
Estimated
Fair Value
 
Unpaid Principal
Balance
 
Estimated
Fair Value
 
Unpaid Principal
Balance
Loans at fair value under the fair value option
 
 
 
 
 
 
 
 
Reverse loans (1)
 
$
10,599,732

 
$
10,139,017

 
$
10,742,922

 
$
10,218,007

Mortgage loans held for sale (1)
 
1,148,940

 
1,098,763

 
1,176,280

 
1,148,897

Mortgage loans related to Non-Residual Trusts
 
440,219

 
495,041

 
450,377

 
513,545

Charged-off loans
 
52,071

 
2,417,501

 
46,963

 
2,439,318

Total
 
$
12,240,962

 
$
14,150,322

 
$
12,416,542

 
$
14,319,767


 
 
 
 
 
 
 
 
Debt instruments at fair value under the fair value option
 
 
 
 
 
 
 
 
Mortgage-backed debt related to Non-Residual Trusts
 
$
498,768

 
$
501,603

 
$
514,025

 
$
518,317

HMBS related obligations (2)
 
10,289,505

 
9,757,690

 
10,509,449

 
9,916,383

Total
 
$
10,788,273

 
$
10,259,293

 
$
11,023,474

 
$
10,434,700

__________
(1)
Includes loans that collateralize master repurchase agreements. Refer to Note 10 for additional 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 had a fair value of $0.4 million and $1.6 million at March 31, 2017 and December 31, 2016, respectively, and an unpaid principal balance of $31.0 million and $29.5 million at March 31, 2017 and December 31, 2016, respectively. Mortgage loans held for sale that are 90 days or more past due are insignificant at March 31, 2017 and December 31, 2016. Charged-off loans are predominantly 90 days or more past due.
Items Measured at Fair Value on a Non-Recurring Basis
The Company held real estate owned, net of $110.1 million and $104.6 million at March 31, 2017 and December 31, 2016, respectively. In addition, the Company had loans that were in the process of foreclosure of $198.8 million and $418.4 million at March 31, 2017 and December 31, 2016, respectively, which are included in residential loans at amortized cost, net and residential loans at fair value on the consolidated balance sheets. Real estate owned, net is included on the consolidated balance sheets within 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:
 
 
 
 
March 31, 2017
 
December 31, 2016
 
 
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% - 60.98%
 
6.89
%
 
0.00% - 61.61%
 
7.30
%

__________
(1)
Loss severity is based on the unpaid principal balance of the related loan at the time of foreclosure.
The Company held real estate owned, net in the Reverse Mortgage and Servicing segments and Other non-reportable segment of $97.4 million, $12.0 million and $0.7 million at March 31, 2017, respectively, and $90.7 million, $12.9 million and $1.0 million at December 31, 2016, respectively. 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. In the determination of fair value of real estate owned associated with reverse mortgages, the Company considers amounts typically covered by FHA insurance. Management approves valuations that have been determined using the historical severity rate method.
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.
 
 
 
 
March 31, 2017
 
December 31, 2016
 
 
Fair Value
Hierarchy
 
Carrying
Amount
 
Estimated
Fair Value
 
Carrying
Amount
 
Estimated
Fair Value
Financial assets
 
 
 
 
 
 
 
 
 
 
Residential loans at amortized cost, net (1)
 
Level 3
 
$
678,482

 
$
693,028

 
$
665,209

 
$
674,851

Servicer and protective advances, net
 
Level 3
 
1,005,157

 
948,453

 
1,195,380

 
1,147,155

 
 
 
 
 
 
 
 
 
 
 
Financial liabilities
 
 
 
 
 
 
 
 
 
 
Servicing advance liabilities (2)
 
Level 3
 
661,057

 
661,646

 
781,734

 
782,570

Corporate debt (3)
 
Level 2
 
2,109,865

 
1,612,373

 
2,126,176

 
1,967,518

Mortgage-backed debt carried at amortized cost
 
Level 3
 
418,184

 
428,272

 
429,931

 
435,679

__________
(1)
Includes loans subject to repurchase from Ginnie Mae.
(2)
The carrying amounts of servicing advance liabilities are net of deferred issuance costs, including those relating to line-of-credit arrangements, which are recorded in other assets.
(3)
The carrying amounts of corporate debt are net of the 2013 Revolver deferred issuance costs, which are recorded in other assets on the consolidated balance sheets.
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 above for mortgage loans related to Non-Residual 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 and when proceeds may be used to recover these receivables.
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 primarily 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 above for mortgage-backed debt related to Non-Residual Trusts.
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 Three Months 
 Ended March 31,
 
 
2017
 
2016
Realized gains on sales of loans
 
$
26,085

 
$
80,080

Change in unrealized gains on loans held for sale
 
19,658

 
10,291

Gains (losses) on interest rate lock commitments
 
(4,526
)
 
13,917

Losses on forward sales commitments
 
(20,548
)
 
(66,953
)
Gains (losses) on MBS purchase commitments
 
11,884

 
(10,796
)
Capitalized servicing rights
 
32,384

 
52,258

Provision for repurchases
 
(1,795
)
 
(4,713
)
Interest income
 
11,203

 
10,393

Other
 
11

 
—

Net gains on sales of loans
 
$
74,356

 
$
84,477


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 Three Months 
 Ended March 31,
 
 
2017
 
2016
Interest income on reverse loans
 
$
113,302

 
$
110,594

Change in fair value of reverse loans
 
(70,690
)
 
44,240

Net fair value gains on reverse loans
 
42,612

 
154,834

 
 
 
 
 
Interest expense on HMBS related obligations
 
(102,436
)
 
(103,254
)
Change in fair value of HMBS related obligations
 
74,526

 
(16,372
)
Net fair value losses on HMBS related obligations
 
(27,910
)
 
(119,626
)
Net fair value gains on reverse loans and related HMBS obligations
 
$
14,702

 
$
35,208