| Mortgage Servicing Rights |
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 at September 30, 2016 and December 31, 2015. Table 9.1 – Fair Value of MSRs and Aggregate Principal Amounts of Associated Loans | | | | | | | | | | | | | | | | | | | | September 30, 2016 | | December 31, 2015 | (In Thousands) | | MSR Fair Value | | Associated Principal | | MSR Fair Value | | Associated Principal | Mortgage Servicing Rights | | | | | | | | | Conforming Loans | | $ | 69,578 |
| | $ | 8,422,222 |
| | $ | 133,838 |
| | $ | 12,560,533 |
| Jumbo Loans | | 36,431 |
| | 5,494,950 |
| | 58,138 |
| | 5,705,939 |
| Total Mortgage Servicing Rights | | $ | 106,009 |
| | $ | 13,917,172 |
| | $ | 191,976 |
| | $ | 18,266,472 |
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The following table presents activity for MSRs for the three and nine months ended September 30, 2016 and 2015. Table 9.2 – Activity for MSRs | | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | (In Thousands) | | 2016 | | 2015 | | 2016 | | 2015 | Balance at beginning of period | | $ | 110,046 |
| | $ | 168,462 |
| | $ | 191,976 |
| | $ | 139,293 |
| Additions | | 3,443 |
| | 22,760 |
| | 22,941 |
| | 73,976 |
| Sales | | (8,860 | ) | | — |
| | (38,419 | ) | | (18,206 | ) | Changes in fair value due to: | | | | | | | | | Changes in assumptions (1) | | 7,085 |
| | (23,786 | ) | | (52,723 | ) | | (18,653 | ) | Other changes (2) | | (5,705 | ) | | (4,710 | ) | | (17,766 | ) | | (13,684 | ) | Balance at End of Period | | $ | 106,009 |
| | $ | 162,726 |
| | $ | 106,009 |
| | $ | 162,726 |
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| | (1) | Primarily reflects changes in prepayment assumptions due to changes in market interest rates. |
| | (2) | Represents changes due to receipt 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 three and nine months ended September 30, 2016. Table 9.3 – MSR Additions | | | | | | | | | | | | | | | | | | (In Thousands) | | Three Months Ended September 30, 2016 | | Nine Months Ended September 30, 2016 | | | MSR Fair Value | | Associated Principal | | MSR Fair Value | | Associated Principal | Jumbo MSR additions: | | | | | | | | | From securitization | | $ | 1,971 |
| | $ | 328,227 |
| | $ | 4,102 |
| | $ | 638,469 |
| From loan sales | | 21 |
| | 3,510 |
| | 145 |
| | 21,002 |
| Total jumbo MSR additions | | 1,992 |
| | 331,737 |
| | 4,247 |
| | 659,471 |
| Conforming MSR additions: | | | | | | | | | From loan sales | | $ | — |
| | $ | — |
| | $ | 3,380 |
| | $ | 316,290 |
| From purchases | | 1,451 |
| | 216,544 |
| | 15,314 |
| | 1,629,762 |
| Total conforming MSR additions | | 1,451 |
| | 216,544 |
| | 18,694 |
| | 1,946,052 |
| Total MSR Additions | | $ | 3,443 |
| | $ | 548,281 |
| | $ | 22,941 |
| | $ | 2,605,523 |
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The following table presents the components of our MSR income for the three and nine months ended September 30, 2016 and 2015. Table 9.4 – Components of MSR Income (Loss), net | | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | (In Thousands) | | 2016 | | 2015 | | 2016 | | 2015 | Servicing income | | | | | | | | | Income | | $ | 9,943 |
| | $ | 10,028 |
| | $ | 32,199 |
| | $ | 28,199 |
| Cost of sub-servicer | | (1,217 | ) | | (1,313 | ) | | (4,958 | ) | | (3,704 | ) | Net servicing income | | 8,726 |
| | 8,715 |
| | 27,241 |
| | 24,495 |
| Market valuation changes of MSRs | | 1,380 |
| | (28,496 | ) | | (70,489 | ) | | (32,337 | ) | Market valuation changes of associated derivatives (1) | | (6,336 | ) | | 23,551 |
| | 55,874 |
| | 1,736 |
| MSR provision for repurchases | | — |
| | (221 | ) | | 208 |
| | (439 | ) | MSR Income (Loss), Net | | $ | 3,770 |
| | $ | 3,549 |
| | $ | 12,834 |
| | $ | (6,545 | ) |
| | (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. |
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