MORTGAGE SERVICING RIGHTS

6 Months Ended

Jun. 30, 2017

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 June 30, 2017 and December 31, 2016 were $748.4 million and $669.4 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 June 30, 2017 is a decrease in the fair value of $23.8 million.

The impact of a 200-basis point increase in the discount rate at June 30, 2017 is a decrease in the fair value of $46.0 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 and six months ended June 30, 2017 and 2016 is shown in the table below:


	For the three months ended				For the six months ended
	June 30,				June 30,
(in thousands)	2017		2016		2017		2016
Beginning balance	$	562,530	$	421,651	$	521,930	$	412,348
Additions, following the sale of loan		44,650		29,053		117,574		64,026
Purchases		—		44,774		—		44,774
Amortization		(29,325)		(23,233)		(58,224)		(45,956)
Pre-payments and write-offs		(4,696)		(4,152)		(8,121)		(7,099)
Ending balance	$	573,159	$	468,093	$	573,159	$	468,093

The following summarizes the components of the net carrying value of the Company’s acquired and originated MSRs as of June 30, 2017:


	As of June 30, 2017
	Gross		Accumulated		Net
(in thousands)	carrying value		amortization		carrying value
Acquired MSRs	$	175,934	$	(114,229)	$	61,705
Originated MSRs		728,606		(217,152)		511,454
Total	$	904,540	$	(331,381)	$	573,159

The expected amortization of MSRs recorded as of June 30, 2017 is shown in the table below. Actual amortization may vary from these estimates.


	Originated MSRs		Acquired MSRs		Total MSRs
(in thousands)	Amortization		Amortization		Amortization
Six Months Ending December 31,
2017	$	51,225	$	6,345	$	57,570
Year Ending December 31,
2018	$	92,976	$	11,515	$	104,491
2019		79,225		10,187		89,412
2020		71,000		8,578		79,578
2021		61,605		6,855		68,460
2022		48,966		4,921		53,887
Thereafter		106,457		13,304		119,761
Total	$	511,454	$	61,705	$	573,159

- 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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