NOTE 5—GUARANTY OBLIGATION AND ALLOWANCE FOR RISK-SHARING OBLIGATIONS

When a loan is sold under the Fannie Mae DUS program, the Company typically agrees to guarantee a portion of the ultimate loss incurred on the loan should the borrower fail to perform. The compensation for this risk is a component of the servicing fee on the loan. No guaranty is provided for loans sold under the Freddie Mac or HUD loan programs.

A summary of the Company’s guaranty obligation as of and for the years ended December 31, 2015 and 2014 follows:


	As of and for the year ended December 31,
(in thousands)	2015		2014
Beginning balance	$	24,975	$	23,489
Additions, following the sale of loan		8,828		6,032
Amortization		(5,423)		(4,546)
Other		(810)		—
Ending balance	$	27,570	$	24,975

The Company evaluates the allowance for risk-sharing obligations by monitoring the performance of each loan for triggering events or conditions that may signal a potential default. In situations where payment under the guaranty is probable and estimable on a specific loan, the Company records an allowance for the estimated risk-sharing obligation through a charge to the provision for risk-sharing obligations, which is a component of Provision for credit losses in the Consolidated Statements of Income, along with a write-off of the loan-specific MSR. The amount of the provision reflects our assessment of the likelihood of payment by the borrower, the estimated disposition value of the underlying collateral, the level of risk sharing, and any remaining unamortized balance of the guaranty obligation.

A summary of the Company’s allowance for risk-sharing obligations for the contingent portion of the guaranty obligation as of and for the years ended December 31, 2015 and 2014 follows:


	As of and for the year ended December 31,
(in thousands)	2015		2014
Beginning balance	$	3,904	$	7,363
Provision for risk-sharing obligations		1,680		1,783
Write-offs		(808)		(5,242)
Other		810		—
Ending balance	$	5,586	$	3,904

When the Company places a loan for which it has a risk-sharing obligation on its watch list, the Company ceases to amortize the guaranty obligation and transfers the remaining unamortized balance of the guaranty obligation to the allowance for risk-sharing obligations. This transfer of the unamortized balance of the guaranty obligation from a noncontingent classification to a contingent classification is presented in the guaranty obligation and allowance for risk-sharing obligations tables above as ‘Other.’ Prior to 2015, the Company did not record such transfers; instead, it wrote off the guaranty obligation at the time of default. If the Company had recorded such transfers at December 31, 2014, the transfer amount would have been approximately $1.0 million.

As of both December 31, 2015 and 2014, the maximum quantifiable contingent liability associated with the Company’s guarantees under the Fannie Mae DUS agreement was $4.1 billion. The maximum quantifiable contingent liability is not representative of the actual loss the Company would incur. The Company would be liable for this amount only if all of the loans it services for Fannie Mae, for which the Company retains some risk of loss, were to default and all of the collateral underlying these loans was determined to be without value at the time of settlement.