Loans Held for Sale, Loan Servicing and Mortgage Origination

3 Months Ended

Mar. 31, 2013

Mortgage Loans on Real Estate, by Loan Disclosure [Text Block]

NOTE 4. Loans Held for Sale, Loan Servicing and Mortgage Origination

     The portfolio of residential mortgages serviced for others was $1.9 billion at both March 31, 2013 and December 31, 2012. The amount of contractually specified servicing fees earned by First Federal for the quarter ended March 31, 2013 was $1.2 million, compared with $956 thousand for the quarter ended March 31, 2012. Servicing fees are recorded in mortgage and other loan income in the Consolidated Statements of Income.

     Mortgage servicing rights (“MSRs”) are recorded in other assets on the Consolidated Balance Sheets at fair value with changes in fair value recorded as a component of mortgage and other loan income in the Consolidated Statements of Income. First Federal uses various free standing derivative instruments to mitigate the income statement effect of changes in fair value due to changes in valuation inputs and residential mortgage servicing rights assumptions. The following table presents the changes in the fair value of MSRs and its offsetting hedge.

	Quarters Ended March 31,
(in thousands)	2013			2012
Decrease in fair value of MSRs	$	(431	)	$	(538	)
Gain (loss) related to derivatives		194			(406	)
Net effect on Consolidated Statements of Income	$	(237	)	$	(944	)

     The fair value of MSRs is highly sensitive to changes in assumptions and fair value is determined by estimating the present value of the asset’s future cash flows utilizing market-based prepayment rates, discount rates and other assumptions validated through comparison to trade information, industry surveys and with the use of independent third party appraisals. Changes in prepayment speed assumptions have the most significant impact on the fair value of MSRs. Generally, as interest rates decline, mortgage loan prepayments accelerate due to increased refinance activity, which results in a decrease in the fair value of the MSR. Measurement of fair value is limited to the conditions existing and the assumptions utilized as of a particular point in time, and those assumptions may not be appropriate if they are applied at a different time.

     The following table is an analysis of the activity in the MSRs.

	Quarters Ended March 31,
(in thousands)	2013			2012
Carrying value at beginning of period	$	13,910		$	10,663
Additions
Servicing assets that resulted from transfers of financial assets		1,818			1,773
Change in fair value
Due to increases (decreases) in valuation inputs or assumptions		221			(27	)
Due to increases in principal paydowns or runoff		(652	)		(511	)
Carrying value at end of period	$	15,297		$	11,898

     The following table displays mortgage loan securitizations and whole loan sales during the respective periods.

	Quarters Ended March 31,
(in thousands)	2013		2012
Loan securitization with Fannie Mae	$	71,131	$	127,401
Loan sales to Fannie Mae		102,540		23,031
Loan sales to FHLB		3,521		2,678
Loan sales or securitizations to other investors		658		5,098
Total loan securitizations and loan sales	$	177,850	$	158,208

     Loans held for sale have historically been comprised of residential mortgage loans awaiting sale in the secondary market, which generally settle in 45 to 60 days. Loans held for sale, which consists of residential mortgage loans to be sold in the secondary market, was $33.8 million at March 31, 2013, compared with $55.2 million at December 31, 2012.