XML 127 R16.htm IDEA: XBRL DOCUMENT v2.4.0.8
Mortgage Banking Operations
 6 Months Ended
Jun. 30, 2013
Mortgage Banking [Abstract]  
MORTGAGE BANKING OPERATIONS
NOTE 7–MORTGAGE BANKING OPERATIONS:

Loans held for sale consisted of the following.
 
(in thousands)
At June 30,
2013
 
At December 31,
2012
 
 
 
 
Single family
$
459,981

 
$
607,578

Multifamily
11,210

 
13,221

 
$
471,191

 
$
620,799



Loans sold consisted of the following.
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in thousands)
2013
 
2012
 
2013
 
2012
 
 
 
 
 
 
 
 
Single family
$
1,229,686

 
$
962,704

 
$
2,590,030

 
$
1,497,015

Multifamily
15,386

 
27,178

 
65,973

 
58,601

 
$
1,245,072

 
$
989,882

 
$
2,656,003

 
$
1,555,616



Net gain on mortgage loan origination and sale activities, including the effects of derivative risk management instruments, consisted of the following.
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in thousands)
2013
 
2012
 
2013
 
2012
 
 
 
 
 
 
 
 
Single family:
 
 
 
 
 
 
 
Servicing value and secondary marketing gains(1)
$
43,448

 
$
40,548

 
$
87,683

 
$
64,328

Provision for repurchase losses(2)
—

 
(1,930
)
 
—

 
(2,320
)
Net gain from secondary marketing activities
43,448

 
38,618

 
87,683

 
62,008

Loan origination and funding fees
8,267

 
7,142

 
16,062

 
12,138

Total single family
51,715

 
45,760

 
$
103,745

 
$
74,146

Multifamily
709

 
1,039

 
2,634

 
$
2,201

Total net gain on mortgage loan origination and sale activities
$
52,424

 
$
46,799

 
$
106,379

 
$
76,347

 
(1)
Comprised of gains and losses on interest rate lock commitments (which considers the value of servicing), single family loans held for sale, forward sale commitments used to economically hedge secondary market activities, and the estimated fair value of the repurchase or indemnity obligation recognized on new loan sales.
(2)
Represents changes in estimated probable future repurchase losses on previously sold loans.

The Company’s portfolio of loans serviced for others is primarily comprised of loans held in U.S. government and agency MBS issued by Fannie Mae, Freddie Mac and Ginnie Mae. Loans serviced for others are not included in the consolidated statements of financial condition as they are not assets of the Company. The composition of loans serviced for others is presented below at the unpaid principal balance.

(in thousands)
At June 30,
2013
 
At December 31,
2012
 
 
 
 
Single family
 
 
 
U.S. government and agency MBS
$
10,063,558

 
$
8,508,458

Other
341,055

 
362,230

 
10,404,613

 
8,870,688

Commercial
 
 
 
Multifamily
720,368

 
727,118

Other
51,058

 
53,235

 
771,426

 
780,353

Total loans serviced for others
$
11,176,039

 
$
9,651,041



The Company has made representations and warranties that the loans sold meet certain requirements. The Company may be required to repurchase mortgage loans or indemnify loan purchasers due to defects in the origination process of the loan, such as documentation errors, underwriting errors and judgments, appraisal errors, early payment defaults and fraud. For further information on the Company's mortgage repurchase liability, see Note 8, Commitments, Guarantees and Contingencies. The following is a summary of changes in the Company's liability for estimated mortgage repurchase losses.

 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in thousands)
2013
 
2012
 
2013
 
2012
 
 
 
 
 
 
 
 
Beginning balance
$
1,975

 
$
861

 
$
1,955

 
$
471

Additions (1)
472

 
2,215

 
1,008

 
2,605

Realized losses (2)
(637
)
 
(957
)
 
(1,153
)
 
(957
)
Balance, end of period
$
1,810

 
$
2,119

 
$
1,810

 
$
2,119

 
(1)
Includes additions for new loan sales and changes in estimated probable future repurchase losses on previously sold loans.
(2)
Includes principal losses and accrued interest on repurchased loans, “make-whole” settlements, settlements with claimants and certain related expense.

Advances are made to Ginnie Mae mortgage pools for delinquent loan and foreclosure costs and for funding of loans repurchased from Ginnie Mae mortgage pools prior to recovery of guaranteed amounts. Ginnie Mae advances of $6.6 million and $5.9 million were recorded in accounts receivable and other assets as of June 30, 2013 and December 31, 2012, respectively.

When the Company has the unilateral right to repurchase Ginnie Mae pool loans it has previously sold (generally loans that are more than 90 days past due), the Company then records the loan on its consolidated statement of financial condition. At June 30, 2013 and December 31, 2012, delinquent or defaulted mortgage loans currently in Ginnie Mae pools that the Company has recognized on its consolidated statements of financial condition totaled $10.1 million and $8.0 million, respectively, with a corresponding amount recorded within accounts payable and other liabilities on the consolidated statements of financial condition. The recognition of previously sold loans does not impact the accounting for the previously recognized MSRs.

Revenue from mortgage servicing, including the effects of derivative risk management instruments, consisted of the following.
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in thousands)
2013
 
2012
 
2013
 
2012
 
 
 
 
 
 
 
 
Servicing income, net:
 
 
 
 
 
 
 
Servicing fees and other
$
7,955

 
$
6,705

 
$
15,562

 
$
13,142

Changes in fair value of single family MSRs due to modeled amortization (1)
(6,569
)
 
(4,052
)
 
(11,675
)
 
(9,022
)
Amortization of multifamily MSRs
(423
)
 
(462
)
 
(913
)
 
(953
)
 
963

 
2,191

 
2,974

 
3,167

Risk management, single family MSRs:
 
 
 
 
 
 
 
Changes in fair value due to changes in model inputs and/or assumptions (2)
14,725

 
(15,354
)
 
18,304

 
(7,942
)
Net gain (loss) from derivatives economically hedging MSR
(13,505
)
 
20,254

 
(16,023
)
 
19,739

 
1,220

 
4,900

 
2,281

 
11,797

Mortgage servicing income
$
2,183

 
$
7,091

 
$
5,255

 
$
14,964

 
(1)
Represents changes due to collection/realization of expected cash flows and curtailments.
(2)
Principally reflects changes in model assumptions, including prepayment speed assumptions, which are primarily affected by changes in mortgage interest rates.

All MSRs are initially measured and recorded at fair value at the time loans are sold. Single family MSRs are subsequently carried at fair value with changes in fair value reflected in earnings in the periods in which the changes occur, while multifamily MSRs are subsequently carried at the lower of amortized cost or fair value.

The fair value of MSRs is determined based on the price that would be received to sell the MSRs in an orderly transaction between market participants at the measurement date. The Company determines fair value using a valuation model that calculates the net present value of estimated future cash flows. Estimates of future cash flows include contractual servicing fees, ancillary income and costs of servicing, the timing of which are impacted by assumptions, primarily expected prepayment speeds and discount rates, which relate to the underlying performance of the loans.

The initial fair value measurement of MSRs is adjusted up or down depending on whether the underlying loan pool interest rate is at a premium, discount or par. Key economic assumptions used in measuring the initial fair value of capitalized single family MSRs were as follows.
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(rates per annum) (1)
2013
 
2012
 
2013
 
2012
 
 
 
 
 
 
 
 
Constant prepayment rate ("CPR") (2)
8.77
%
 
11.36
%
 
9.12
%
 
10.68
%
Discount rate
10.28
%
 
10.28
%
 
10.27
%
 
10.33
%
 
(1)
Weighted average rates for sales during the period for sales of loans with similar characteristics.
(2)
Represents the expected lifetime average.

Key economic assumptions and the sensitivity of the current fair value for single family MSRs to immediate adverse changes in those assumptions were as follows.

(dollars in thousands)
At June 30, 2013
 
 
Fair value of single family MSR
$
128,146

Expected weighted-average life (in years)
6.58

Constant prepayment rate (1)
12.48
%
Impact on 10% adverse change
$
(5,361
)
Impact on 25% adverse change
$
(11,042
)
Discount rate
10.50
%
Impact on fair value of 100 basis points increase
$
(4,665
)
Impact on fair value of 200 basis points increase
$
(9,011
)
 
(1)
Represents the expected lifetime average.

These sensitivities are hypothetical and should be used with caution. As the table above demonstrates, the Company’s methodology for estimating the fair value of MSRs is highly sensitive to changes in key assumptions. For example, actual prepayment experience may differ and any difference may have a material effect on MSR fair value. Changes in fair value resulting from changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in this table, the effect of a variation in a particular assumption on the fair value of the MSRs is calculated without changing any other assumption; in reality, changes in one factor may be associated with changes in another (for example, decreases in market interest rates may provide an incentive to refinance; however, this may also indicate a slowing economy and an increase in the unemployment rate, which reduces the number of borrowers who qualify for refinancing), which may magnify or counteract the sensitivities. Thus, any measurement of MSR fair value is limited by the conditions existing and assumptions made as of a particular point in time. Those assumptions may not be appropriate if they are applied to a different point in time.

The changes in single family MSRs measured at fair value are as follows.
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in thousands)
2013
 
2012
 
2013
 
2012
 
 
 
 
 
 
 
 
Beginning balance
$
102,678

 
$
79,381

 
$
87,396

 
$
70,169

Additions and amortization:
 
 
 
 
 
 
 
Originations
17,306

 
10,598

 
34,112

 
17,321

Purchases
6

 
12

 
9

 
59

Changes due to modeled amortization(1)
(6,569
)
 
(4,052
)
 
(11,675
)
 
(9,022
)
Net additions and amortization
10,743

 
6,558

 
22,446

 
8,358

Changes in fair value due to changes in model inputs and/or assumptions (2)
14,725

 
(15,354
)
 
18,304

 
(7,942
)
Ending balance
$
128,146

 
$
70,585

 
$
128,146

 
$
70,585

 
(1)
Represents changes due to collection/realization of expected cash flows and curtailments.
(2)
Principally reflects changes in model assumptions, including prepayment speed assumptions, which are primarily affected by changes in mortgage interest rates.

MSRs resulting from the sale of multifamily loans are subsequently carried at the lower of amortized cost or fair value. Multifamily MSRs are recorded at fair value and are amortized in proportion to, and over, the estimated period the net servicing income will be collected.

The changes in multifamily MSRs measured at the lower of amortized cost or fair value were as follows.
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in thousands)
2013
 
2012
 
2013
 
2012
 
 
 
 
 
 
 
 
Beginning balance
$
9,150

 
$
7,420

 
$
8,097

 
$
7,112

Origination
512

 
697

 
2,055

 
1,496

Amortization
(423
)
 
(462
)
 
(913
)
 
(953
)
Ending balance
$
9,239

 
$
7,655

 
$
9,239

 
$
7,655



At June 30, 2013, the expected weighted-average life of the Company’s multifamily MSRs was 9.06 years. Projected amortization expense for the gross carrying value of multifamily MSRs is estimated as follows.
 
(in thousands)
At June 30, 2013
 
 
Remainder of 2013
$
823

2014
1,509

2015
1,340

2016
1,226

2017
1,101

2018 and thereafter
3,240

Carrying value of multifamily MSR
$
9,239