4. Loans Held for Sale

Loans held for sale as of June 30, 2016 and December 31, 2015, consisted of the following:



	June 30, 2016		December 31, 2015
Mortgage warehouse (carried at fair value)	$	734,807	$	624,726
Other residential (carried at fair value)	590,342		683,015
Total loans held for sale carried at fair value	1,325,149		1,307,741
Other residential	67,665		22,774
Commercial and commercial real estate	92,933		178,753
Total loans held for sale carried at lower of cost or market	160,598		201,527
Total loans held for sale	$	1,485,747	$	1,509,268

The Company has elected the fair value option for loans it originates with the intent to market and sell in the secondary market either through third party sales or securitizations. Mortgage warehouse loans are largely comprised of agency deliverable products that the Company typically sells within three months subsequent to origination. The Company economically hedges the mortgage warehouse portfolio with forward purchase and sales commitments designed to protect against potential changes in fair value. Due to the short duration that these loans are present on the balance sheet and in part due to the burden of complying with the requirement of hedge accounting, the Company has elected fair value accounting on this portfolio of loans. The Company has also elected the fair value option for originated fixed-rate jumbo loans due to the short duration that these loans are present on the balance sheet. Electing to use fair value accounting allows a better offset of the changes in the fair values of the loans and the derivative instruments used to economically hedge these loans without the burden of complying with the requirements for hedge accounting. The Company has not elected the fair value option for other residential mortgage and commercial and commercial real estate loans as the majority of these loans were transferred from the held for investment portfolio and are expected to be sold within a short period subsequent to transfer. These loans are carried at the lower of cost or market value.

A majority of the loans held for sale that are carried at the lower of cost or market value represent loans that were transferred from the held for investment portfolio. Other residential loans held at the lower of cost or market value represent government insured pool buyouts that have re-performed and are now eligible to be re-securitized or sold to third parties and other residential mortgage loans for which the Company has changed its intent and has made a decision to sell the loans and as such transferred the loans to held for sale. A majority of these other residential mortgage loans consist of jumbo preferred adjustable rate mortgage (ARM) loans. Commercial and commercial real estate loans represent multi-family loans which the Company is actively marketing to sell. As the Company no longer has the intent to hold these loans for the foreseeable future, the loans were transferred to held for sale. Residential loans, commercial and commercial real estate loans and equipment financing receivables are transferred to the held for sale portfolio when the Company has entered into a commitment to sell a specific portion of its held for investment portfolio or when the Company has a formal marketing strategy and intends to sell a certain loan product.

In conjunction with the sale of loans and leases, the Company may be exposed to limited liability related to recourse agreements and repurchase agreements made to its insurers and purchasers, which are included in commitments and contingencies in Note 14. Commitments and contingencies include amounts related to loans sold that the Company may be required to repurchase, or otherwise indemnify or reimburse the investor or insurer for losses incurred, due to a breach with respect to Government Sponsored Enterprises (GSE) purchasers or a material breach with respect to non-GSE purchasers, of contractual representations and warranties. Refer to Note 14 for the maximum exposure to loss for material breach of contractual representations and warranties.

The following is a summary of cash flows related to transfers accounted for as sales for the three and six months ended June 30, 2016 and 2015:



	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
Proceeds received from residential agency securitizations	$	989,604	$	1,116,314	$	1,845,568	$	2,175,392

Proceeds received from nonsecuritization sales - residential	1,236,681		1,281,941		2,668,183		1,648,156
Proceeds received from nonsecuritization sales - commercial and commercial real estate	193,372		103,279		405,439		103,279
Proceeds received from nonsecuritization sales - equipment financing receivables	47,993		28,071		123,577		40,129
Proceeds received from nonsecuritization sales	$	1,478,046	$	1,413,291	$	3,197,199	$	1,791,564

Repurchased loans from residential agency sales and securitizations	$	2,569	$	1,866	$	4,157	$	2,521
Repurchased loans from residential nonagency sales	1,935		4,073		2,635		5,377
Repurchased loans from commercial sales and securitizations ⁽¹⁾	74,987		105,652		74,987		105,652

(1)

Represents loans that were voluntarily repurchased out of the Business Lending Trusts through a clean-up call. Of those loans repurchased during the three months ended June 30, 2016, all were subsequently sold to third parties by June 30, 2016. Of those loans repurchased in 2015, $103,279 were subsequently sold to third parties during the three and six months ended June 30, 2015 and $2,524 were held for sale as of June 30, 2015.

In connection with these transfers, the Company recorded servicing assets in the amount of $16,207 and $30,966 for the three and six months ended June 30, 2016 and $16,531 and $28,823 for the three and six months ended June 30, 2015. All servicing assets are initially recorded at fair value using a Level 3 measurement technique. Refer to Note 7 for information relating to servicing activities and MSR and Note 13 for a description of the valuation process. The gains and losses on the transfers which qualified as sales are recorded in the condensed consolidated statements of income in gain on sale of loans, which includes the gain or loss on sale, change in fair value related to fair value option loans, and the change in fair value related to offsetting hedging positions.

The following is a summary of transfers of loans from held for investment to held for sale and transfers of loans from held for sale to held for investment for the three and six months ended June 30, 2016 and 2015.



	Three Months Ended June 30,				Six Months Ended June 30,
Loans Transferred from Held for Investment (LHFI) to Held for Sale (LHFS)	2016		2015		2016		2015
Residential mortgages	$	367,727	$	1,339	$	864,090	$	709,722
Government insured pool buyouts	476,332		217,253		901,536		485,672
Commercial and commercial real estate	100,453		—		270,861		—
Equipment financing receivables	45,560		26,040		117,732		37,190
Total transfers from LHFI to LHFS	$	990,072	$	244,632	$	2,154,219	$	1,232,584

Loans Transferred from LHFS to LHFI
Residential mortgages	$	—	$	80,029	26,155		194,054
Commercial and commercial real estate	—		—		28,753		—
Total transfers from LHFS to LHFI	$	—	$	80,029	$	54,908	$	194,054

Loans and leases are transferred from LHFI to LHFS when the Company no longer has the intent to hold the loans and leases for the foreseeable future. Loans and leases are transferred from LHFS to LHFI when the Company determines that it intends to hold the loans and leases for the foreseeable future and no longer has the intent to sell. Loan transfers from LHFS to LHFI and transfers from LHFI to LHFS represent noncash activities within the operating and investing sections of the statement of cash flows.