Mortgage Servicing Rights

We invest in mortgage servicing rights associated with residential mortgage loans and contract with a licensed sub-servicer to perform all servicing functions for these loans. The following table presents the fair value of MSRs and the aggregate principal amounts of associated loans as of June 30, 2015 and December 31, 2014.



	June 30, 2015				December 31, 2014
(In Thousands)	MSR Fair Value		Associated Principal		MSR Fair Value		Associated Principal
Mortgage Servicing Rights
Conforming Loans	$	101,458	$	8,917,808	$	81,301	$	7,705,146
Jumbo Loans	67,004		6,148,268		57,992		5,962,784
Total Mortgage Servicing Rights	$	168,462	$	15,066,076	$	139,293	$	13,667,930

MSR Activity

The following table presents activity for MSRs for the three and six months ended June 30, 2015 and 2014.



	Three Months Ended June 30,						Six Months Ended June 30,
(In Thousands)	2015			2014			2015			2014
Balance at beginning of period	$	120,324		$	64,971		$	139,293		$	64,824
Additions	32,463			11,807			51,217			14,666
Sales	—			—			(18,206		)	—
Changes in fair value due to:
Changes in assumptions ⁽¹⁾	19,168			(3,553		)	5,132			(4,678		)
Other changes⁽²⁾	(3,493		)	(2,000		)	(8,974		)	(3,587		)
Balance at End of Period	$	168,462		$	71,225		$	168,462		$	71,225


(1)	Primarily reflects changes in prepayment assumptions due to changes in market interest rates.


(2)	Represents changes due to realization of expected cash flows.

MSR Additions

We make investments in MSRs through the retention of servicing rights associated with the residential mortgage loans that we acquire and subsequently transfer to third parties or through the direct acquisition of MSRs sold by third parties. We hold our MSR investments at a taxable REIT subsidiary. The following table details the retention and purchase of MSRs during the three and six months ended June 30, 2015.



(In Thousands)	Three Months Ended June 30, 2015				Six Months Ended June 30, 2015
	MSR Fair Value		Associated Principal		MSR Fair Value		Associated Principal
Jumbo MSR additions:
From securitization	$	6,002	$	607,402	$	7,874	$	835,254
From loan sales	172		16,122		264		26,267
Total jumbo MSR additions	6,174		623,524		8,138		861,521
Conforming MSR additions:
From loan sales	$	14,990	$	1,348,871	$	28,701	$	2,701,529
From purchases	11,299		1,025,576		14,378		1,343,914
Total conforming MSR additions	26,289		2,374,447		43,079		4,045,443
Total MSR additions	$	32,463	$	2,997,971	$	51,217	$	4,906,964

MSR Income (Loss), net

The following table presents the components of our MSR income.



	Three Months Ended June 30,						Six Months Ended June 30,
(In Thousands)	2015			2014			2015			2014
Servicing income
Income	$	8,454		$	4,064		$	18,170		$	7,697
Cost of sub-servicer	(1,162		)	(288		)	(2,391		)	(603		)
Net servicing income	7,292			3,776			15,779			7,094
Market valuation changes of MSRs	15,675			(5,553		)	(3,842		)	(8,265		)
Market valuation changes of associated derivatives ⁽¹⁾	(21,814		)	—			(21,814		)	—
MSR provision for repurchases	(323		)	—			(217		)	—
MSR income (loss), net	$	830		$	(1,777	)	$	(10,094	)	$	(1,171	)


(1)	In the second quarter of 2015, we began to identify specific derivatives used to hedge the exposure of our MSRs to changes in market interest rates. See Note 2 for additional detail.