Mortgage Servicing Rights

3 Months Ended

Mar. 31, 2016

NOTE 4—MORTGAGE SERVICING RIGHTS

Mortgage Servicing Rights (“MSRs”) represent the carrying value of the servicing rights retained by the Company for mortgage loans originated and sold. The initial capitalized amount is equal to the estimated fair value of the expected net cash flows associated with the servicing rights. MSRs are amortized using the interest method over the period that servicing income is expected to be received.

The fair values of the MSRs at March 31, 2016 and December 31, 2015 were $519.0 million and $510.6 million, 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, 2016 is a decrease in the fair value of $16.3 million.

The impact of a 200 basis point increase in the discount rate at March 31, 2016 is a decrease in the fair value of $31.4 million.

These sensitivities are hypothetical and should be used with caution. These estimates do not include interplay among assumptions and are estimated as a portfolio rather than individual assets.

Activity related to capitalized MSRs for the three months ended March 31, 2016 and 2015 was as follows:


	For the three months ended
	March 31,
(in thousands)	2016		2015
Beginning balance	$	412,348	$	375,907
Additions, following the sale of loan		34,973		24,182
Amortization		(22,723)		(18,820)
Pre-payments and write-offs		(2,947)		(6,110)
Ending balance	$	421,651	$	375,159

The following summarizes the components of the net carrying value of the Company’s acquired and originated MSRs as of March 31, 2016:


	As of March 31, 2016
	Gross		Accumulated		Net
(in thousands)	carrying value		amortization		carrying value
Acquired MSRs	$	132,837	$	(91,126)	$	41,711
Originated MSRs		538,924		(158,984)		379,940
Total	$	671,761	$	(250,110)	$	421,651

The expected amortization of MSRs recorded as of March 31, 2016 is shown in the table below. Actual amortization may vary from these estimates.


	Originated MSRs		Acquired MSRs		Total MSRs
(in thousands)	Amortization		Amortization		Amortization
Nine Months Ending December 31,
2016	$	58,378	$	8,455	$	66,833
Year Ending December 31,
2017		68,616		10,209		78,825
2018		57,964		7,761		65,725
2019		51,789		6,449		58,238
2020		44,187		4,792		48,979
2021		35,518		2,903		38,421
Thereafter		63,488		1,142		64,630
Total	$	379,940	$	41,711	$	421,651

- Definition

The entire disclosure for a transferor's continuing involvement in financial assets that it has transferred in a securitization or asset-backed financing arrangement, the nature of any restrictions on assets reported by an entity in its statement of financial position that relate to a transferred financial asset (including the carrying amounts of such assets), how servicing assets and servicing liabilities are reported, and (for securitization or asset-backed financing arrangements accounted for as sales) when a transferor has continuing involvement with the transferred financial assets and transfers of financial assets accounted for as secured borrowings, how the transfer of financial assets affects an entity's financial position, financial performance, and cash flows.

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