Mortgage Servicing Rights

We invest in mortgage servicing rights associated with residential mortgage loans and contract with licensed sub-servicers 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 December 31, 2017 and December 31, 2016.

Table 8.1 – Fair Value of MSRs and Aggregate Principal Amounts of Associated Loans



	December 31, 2017				December 31, 2016
(In Thousands)	MSR Fair Value		Associated Principal		MSR Fair Value		Associated Principal
Mortgage Servicing Rights
Conforming Loans	$	1,194	$	107,416	$	58,523	$	4,989,720
Jumbo Loans	62,404		5,449,239		60,003		5,467,169
Total Mortgage Servicing Rights	$	63,598	$	5,556,655	$	118,526	$	10,456,889

The following table presents activity for MSRs for the years ended December 31, 2017, 2016, and 2015.

Table 8.2 – Activity for MSRs



	Years Ended December 31,
(In Thousands)	2017			2016			2015
Balance at beginning of period	$	118,526		$	191,976		$	139,293
Additions	8,026			25,362			95,281
Sales	(52,788		)	(62,440		)	(18,206		)
Changes in fair value due to:
Changes in assumptions ⁽¹⁾	(1,088		)	(14,512		)	(5,453		)
Other changes ⁽²⁾	(9,078		)	(21,860		)	(18,939		)
Balance at End of Period	$	63,598		$	118,526		$	191,976


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


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

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 our taxable REIT subsidiary. The following table details the retention and purchase of MSRs during the years ended December 31, 2017 and 2016.

Table 8.3 – MSR Additions



	Years Ended December 31,
	2017				2016
(In Thousands)	MSR Fair Value		Associated Principal		MSR Fair Value		Associated Principal
Jumbo MSR additions:
From securitization	$	7,123	$	654,605	$	6,451	$	939,861
From loan sales	263		31,658		177		26,844
Total jumbo MSR additions	7,386		686,263		6,628		966,705
Conforming MSR additions:
From loan sales	—		—		3,380		316,290
From purchases	640		106,108		15,354		1,643,577
Total conforming MSR additions	640		106,108		18,734		1,959,867
Total MSR Additions	$	8,026	$	792,371	$	25,362	$	2,926,572

The following table presents the components of our MSR income for the years ended December 31, 2017, 2016, and 2015.

Table 8.4 – Components of MSR Income (Loss), net



	Years Ended December 31,
(In Thousands)	2017			2016			2015
Servicing income	$	21,120		$	41,152		$	38,964
Cost of sub-servicer	(2,828		)	(6,281		)	(5,079		)
Net servicing fee income	18,292			34,871			33,885
Market valuation changes of MSRs	(10,166		)	(36,372		)	(24,392		)
Market valuation changes of associated derivatives ⁽¹⁾	(568		)	15,584			(12,708		)
MSR reversal of provision for repurchases	302			270			(707		)
MSR Income (Loss), Net	$	7,860		$	14,353		$	(3,922	)


(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.