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. The Company does not provide a guaranty for any other loan product it sells or brokers.

Activity related to the guaranty obligation for the three months ended March 31, 2017 and 2016 is presented in the following table:


	For the three months ended
	March 31,
(in thousands)	2017		2016
Beginning balance	$	32,292	$	27,570
Additions, following the sale of loan		4,689		1,911
Amortization		(1,580)		(1,212)
Other		(90)		283
Ending balance	$	35,311	$	28,552

Activity related to the allowance for risk-sharing obligations for the three months ended March 31, 2017 and 2016 is shown in the following table:


	For the three months ended
	March 31,
(in thousands)	2017		2016
Beginning balance	$	3,613	$	5,586
Provision (benefit) for risk-sharing obligations		(157)		(154)
Write-offs		—		—
Other		90		(283)
Ending balance	$	3,546	$	5,149

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.’

The Allowance for risk-sharing obligations as of March 31, 2017 is based entirely on the Company’s collective assessment of the probability of loss related to the loans on the watch list as of March 31, 2017.

As of March 31, 2017, the maximum quantifiable contingent liability associated with the Company’s guarantees under the Fannie Mae DUS agreement was $5.2 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.