MORTGAGE SERVICING RIGHTS

12 Months Ended

Dec. 31, 2016

NOTE 4—MORTGAGE SERVICING RIGHTS

The fair value of MSRs at December 31, 2016 and December 31, 2015 was $669.4 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. See the following sensitivities related to the discount rate:

The impact of a 100 basis point increase in the discount rate at December 31, 2016 is a decrease in the fair value of $21.2 million to the MSRs outstanding as of December 31, 2016.

The impact of a 200 basis point increase in the discount rate at December 31, 2016 is a decrease in the fair value of $41.0 million to the MSRs outstanding as of December 31, 2016.

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 year ended December 31, 2016 and 2015 follows:


	For the year ended December 31,
(in thousands)	2016		2015
Beginning balance	$	412,348	$	375,907
Additions, following the sale of loan		181,032		135,441
Purchases		43,097		—
Amortization		(99,417)		(80,702)
Pre-payments and write-offs		(15,130)		(18,298)
Ending balance	$	521,930	$	412,348

As shown in the table above, during 2016, the Company purchased the rights to service a HUD loan portfolio from a third-party servicer. The closing-date purchase price was $44.8 million of cash consideration. The amount in the ‘Purchases’ line in the table above consists of the closing amount of $44.8 million, net of purchase-price adjustments reducing the closing amount by $1.7 million, for a revised purchase amount of $43.1 million. The servicing portfolio, after consideration of purchase-price adjustments, consisted of approximately $3.6 billion of unpaid principal balance and had a weighted average estimated remaining life of 10.9 years.

The following summarizes the components of the net carrying value of the Company’s acquired and originated MSRs as of December 31, 2016 and 2015:


	As of December 31, 2016
	Gross		Accumulated		Net
(in thousands)	carrying value		amortization		carrying value
Acquired MSRs	$	175,934	$	(104,264)	$	71,670
Originated MSRs		642,030		(191,770)		450,260
Total	$	817,964	$	(296,034)	$	521,930


	As of December 31, 2015
	Gross		Accumulated		Net
(in thousands)	carrying value		amortization		carrying value
Acquired MSRs	$	132,837	$	(84,754)	$	48,083
Originated MSRs		511,915		(147,650)		364,265
Total	$	644,752	$	(232,404)	$	412,348

The expected amortization of MSRs recorded as of December 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
Year Ending December 31,
2017	$	90,304	$	14,711	$	105,015
2018		78,092		12,227		90,319
2019		67,493		10,795		78,288
2020		59,847		8,924		68,771
2021		50,738		7,018		57,756
Thereafter		103,786		17,995		121,781
Total	$	450,260	$	71,670	$	521,930

The Company recorded write-offs of MSRs related to loans that were repaid prior to the expected maturity and loans that defaulted. These write-offs are included as a component of Amortization and depreciation in the accompanying Consolidated Statements of Income and the MSR roll forward shown above and relate to MSRs recognized at loan sale only. Prepayment fees totaling $10.6 million, $15.0 million, and $9.3 million were collected for 2016, 2015, and 2014, respectively, and are included as a component of Other revenues in the Consolidated Statements of Income.

Management reviews the capitalized MSRs for temporary impairment quarterly by comparing the aggregate carrying value of the MSR portfolio to the aggregate estimated fair value of the portfolio. Additionally, MSRs related to Fannie Mae loans where the Company has risk-sharing obligations are assessed for permanent impairment on an asset-by-asset basis, considering factors such as debt service coverage ratio, property location, loan-to-value ratio, and property type. Except for defaulted or prepaid loans, no temporary or permanent impairment was recognized for the years ended December 31, 2016, 2015, and 2014.

The weighted average remaining life of the aggregate MSR portfolio is 7.4 years.

- 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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