Mortgage Banking

3 Months Ended

Mar. 31, 2017

Note 6 – Mortgage Banking

The activity in the mortgage servicing rights (MSR) is detailed in the table below for the periods presented ($ in thousands):

	Three Months Ended March 31,
	2017			2016
Balance at beginning of period	$	80,239		$	74,007
Origination of servicing assets		3,440			3,072
Change in fair value:
Due to market changes		1,466			(6,866	)
Due to run-off		(2,387	)		(2,005	)
Balance at end of period	$	82,758		$	68,208

During the first three months of 2017 and 2016, Trustmark sold $260.1 million and $235.4 million, respectively, of residential mortgage loans. Pretax gains on these sales were recorded to noninterest income in mortgage banking, net and totaled $3.6 million for the first three months of 2017 compared to $2.6 million for the first three months of 2016. The table below details the mortgage loans sold and serviced for others at March 31, 2017 and December 31, 2016 ($ in thousands):

	March 31, 2017		December 31, 2016
Federal National Mortgage Association	$	4,033,540	$	3,992,349
Government National Mortgage Association		2,307,321		2,291,398
Federal Home Loan Mortgage Corporation		53,377		55,006
Other		30,264		32,589
Total mortgage loans sold and serviced for others	$	6,424,502	$	6,371,342

Trustmark is subject to losses in its loan servicing portfolio due to loan foreclosures. Trustmark has obligations to either repurchase the outstanding principal balance of a loan or make the purchaser whole for the economic benefits of a loan if it is determined that the loan sold was in violation of representations or warranties made by Trustmark at the time of the sale, herein referred to as mortgage loan servicing putback expenses. Such representations and warranties typically include those made regarding loans that had missing or insufficient file documentation, loans that do not meet investor guidelines, loans in which the appraisal does not support the value and/or loans obtained through fraud by the borrowers or other third parties. Generally, putback requests may be made until the loan is paid in full. However, mortgage loans delivered to Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC) on or after January 1, 2013 are subject to the Lending and Selling Representations and Warranties Framework updated in May 2014, which provides certain instances in which FNMA and FHLMC will not exercise their remedies, including a putback request, for breaches of certain selling representations and warranties, such as payment history and quality control review.

When a putback request is received, Trustmark evaluates the request and takes appropriate actions based on the nature of the request. Trustmark is required by FNMA and FHLMC to provide a response to putback requests within 60 days of the date of receipt. Currently, putback requests primarily relate to 2009 through 2013 vintage mortgage loans. Trustmark incurred $105 thousand of mortgage loan servicing putback expenses, included in other expense, during both the first three months of 2017 and 2016.

Changes in the reserve for mortgage loan servicing putback expense for mortgage loans were as follows for the periods presented ($ in thousands):

	Three Months Ended March 31,
	2017		2016
Balance at beginning of period	$	1,130	$	1,685
Provision for putback expenses		105		105
Gains (losses)		16		(5	)
Balance at end of period	$	1,251	$	1,785

There is inherent uncertainty in reasonably estimating the requirement for reserves against potential future mortgage loan servicing putback expenses. Future putback expenses are dependent on many subjective factors, including the review procedures of the purchasers and the potential refinance activity on loans sold with servicing released and the subsequent consequences under the representations and warranties. Trustmark believes that it has appropriately reserved for potential mortgage loan servicing putback requests.

- 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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