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 for the noncontingent portion of the guaranty obligation as of and for the years ended December 31, 2016 and 2015 follows:


	For the year ended December 31,
(in thousands)	2016		2015
Beginning balance	$	27,570	$	24,975
Additions, following the sale of loan		10,597		8,828
Amortization		(5,946)		(5,423)
Other		71		(810)
Ending balance	$	32,292	$	27,570

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, 2016 and 2015 follows:


	For the year ended December 31,
(in thousands)	2016		2015
Beginning balance	$	5,586	$	3,904
Provision (benefit) for risk-sharing obligations		(145)		1,680
Write-offs		(1,757)		(808)
Other		(71)		810
Ending balance	$	3,613	$	5,586

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. When a loan for which the Company has a risk-sharing obligation is removed from the watch list, the loan’s reserve is transferred from the allowance for risk-sharing obligations to the guaranty obligation, and the amortization of the remaining balance over the remaining estimated life is resumed. This net transfer of the unamortized balance of the guaranty obligation from a noncontingent classification to a contingent classification (and vice versa) is presented in the guaranty obligation and allowance for risk-sharing obligations tables above as ‘Other.’

During 2016, the Company and Fannie Mae settled the loss sharing amounts related to the last three remaining previously defaulted at risk loans. As a result of these loss settlements, the Allowance for risk-sharing obligations as of December 31, 2016 is based entirely on the Company’s collective assessment of the probability of loss related to the loans on the watch list as of December 31, 2016. The write-offs in the table above are net of $0.8 million and $0 of recoveries for the years ended December 31, 2016 and 2015, respectively. The net benefit for risk-sharing obligations for the year ended December 31, 2016 is the result of the aforementioned recoveries.

As of December 31, 2016 and 2015, the maximum quantifiable contingent liability associated with the Company’s guarantees under the Fannie Mae DUS agreement was $4.9 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.