NOTE 5—MORTGAGE SERVICING RIGHTS

MSRs represent the fair value of the servicing rights retained by the Company for mortgage loans originated and sold. The capitalized amount is equal to the estimated fair value of the expected net cash flows associated with the servicing rights. The following describes the key assumptions used in calculating each loan’s MSR:

Discount rate—Depending upon loan type, the discount rate used is management’s best estimate of market discount rates. The rates used for loans originated were 10% to 15% for each of the three-month periods presented.

Estimated Life—The estimated life of the MSRs is derived based upon the stated yield maintenance and/or prepayment protection term of the underlying loan and may be reduced by 6 to 12 months based upon the expiration of various types of prepayment penalty and/or lockout provisions prior to that stated maturity date.

Servicing Cost—The estimated future cost to service the loan for the estimated life of the MSR is subtracted from the estimated future cash flows.

The fair value of the MSRs was $373.7 million and $350.5 million at March 31, 2013 and December 31, 2012, respectively. The Company uses a discounted static cash flow valuation approach and the key economic assumption is the discount rate. For example see the following sensitivities:

The impact of a 100 basis point increase in the discount rate at March 31, 2013, is a decrease in the fair value of $11.7 million.

The impact of a 200 basis point increase in the discount rate at March 31, 2013, is a decrease in the fair value of $22.7 million.

Activity related to capitalized MSRs for the three months ended March 31, 2013 and 2012 was as follows (in thousands):

	For the three months ended March 31,
	2013			2012

Beginning balance	$	315,524		$	137,079
Additions, following the sale of loan	38,793			13,027
Amortization	(15,105		)	(6,350		)
Pre-payments and write-offs	(2,815		)	(1,135		)
Ending balance	$	336,397		$	142,621

The expected amortization of MSR balances recorded as of March 31, 2013 is shown below (in thousands):

	Originated MSRs		Acquired MSRs		Total MSRs
	Amortization		Amortization		Amortization
Nine Months Ending December 31,
2013	$	29,436	$	15,732	$	45,168
Year Ending December 31,
2014	36,686		19,565		56,251
2015	32,065		17,867		49,932
2016	29,565		16,400		45,965
2017	26,547		14,387		40,934
2018	22,576		10,468		33,044
Thereafter	49,939		15,164		65,103
Total	$	226,814	$	109,583	$	336,397